Income Producing Real Estate Investing

May 16, 2022

Distribution center front

It’s very likely that you are looking into real estate as a way to generate additional income or cash flow “on the side”. There are a number of ways to do this and those looking to passively invest don’t know where to start most of the time. And for good reason, because there are a lot of options when you start looking into real estate investments that can be used to produce income. This is exactly why we put together this article.

Here we’ll break down for you the pros and cons of the different ways you can be investing in commercial real estate.

Types of Real Estate Investments: Pros and Cons

Let’s look at the pros and cons of investing in different types of real estate. Each of these strategies will have its own set of advantages and disadvantages, but most investors have personal preferences and tolerances which help guide you to the investment type that is the best fit for you, your style, and your goals.

Multifamily Property

The benefit of investing in multifamily buildings is that duplexes, triplexes, fourplexes, and large multi-unit complexes are excellent cash flow generators. Not only will this increase revenue, but it will also make property administration and upkeep much easier because the tenants of each property are all in the same building. This type of investment basically comes down to two primary cons. The first is that there are fewer lenders who will underwrite multifamily property deals. You really have to find someone who specializes in this area or has it as an arm of their bank or institution. Second, you have limited options when it comes to selling the property. In most cases, you’ll need to sell to another investor or investment group.

Fix-and-Flip Real Estate

This type of investment is exactly what the name implies. With these, you will purchase a property that needs work, update the property and immediately exit the property via a sale. This strategy applies to all real estate including commercial real estate investments.

The benefits of this are that you have the ability to make a larger amount of money in a shorter period of time and it can be easier to sell to an investor since the property value is higher and market-ready. This can however come with a few cons. The investment can have high risk due to a fluctuation in the market and if the market is saturated with other investors doing “fix and flips” then you may find it harder to exit through a sale. 

Single-Family Rentals

While we focus on commercial real estate, we still wanted to at least mention the single-family real estate space for those who might be considering it. The benefits of investing in this sort of real estate include the fact that it will be the most prevalent residential property in the United States, making it very easy to find on the market. Another advantage is the low-cost financing provided by a number of institutions.

Where there are advantages, there are always disadvantages. Although single-family rentals are popular, as an investor, you must be aware of all exit alternatives. These tactics include selling to other investors, tenants, or owner-occupants. When looking for single-family rentals, it is critical to keep this in mind. Another disadvantage of investing in these sorts of properties, although not a deal-breaker, is that not every house makes a suitable rental property since tenant demand will vary.

Crowdfunded Real Estate

This is relatively new and allows many investors to put smaller amounts of capital into a project to fully fund real estate. This can also be applied to all types of real estate, but commercial real estate is one type that is doing the best in the crowd-invested real estate space. 

There are a few things that make investing in crowdfunded real estate a good idea. First, the ability to invest smaller amounts of money into very large commercial real estate investments often results in higher gains. It is a very good way to own a piece of very large commercial real estate investments. And investors in crowdfunded properties earn income from quarterly distributions and a share of the profit when the property is sold. 

The downside is that potential gains and losses from a crowdfund investment rely on the experience of the crowdfund sponsor or investment firm that finds and manages each project. It can also be much riskier than other real estate investments due to the investor base typically being less sophisticated, leading to lower quality investments being listed (because they don’t know any better).

3 Benefits of Real Estate Investing in Income-Producing Property

We’ve talked about the different types of investments and their pros and cons, but here we’ll share with you 3 of the most significant benefits an investor will gain by investing in real estate that actually produces an income.

  1. You control the property, not Wall Street This is big for those who want to ensure they control their financial future. By investing in real estate you get to make the decision on what to invest in. By putting your money into other investment vehicles such as ETFs or 401(k)s you have much less control over what exactly is being invested in. This can leave you exposed and generate lower-than-expected returns.
  2. Generate your own investment capital After a period of investing in income-producing property, you’ll realize it’s also a fantastic strategy to produce extra investment funds. There are also many other people nowadays who have money to invest but lack the time and expertise in the real estate industry that you have. As a successful real estate investor, you may create modest partnerships or joint ventures to raise funds and then split the profits with your investors.
  3. Use leverage to boost returns Unlike investing in stocks, you may utilize leverage, whether that be other people’s money or equity in another property to invest in income-producing property and increase your profits as a real estate investor. You may also enhance your cash-on-cash return by employing leverage and taking out a mortgage on a real estate investment.

We’ve listed here a number of pros & cons of different investment types and strategies as well as some of the biggest benefits to you as a commercial real estate investor. If you are considering putting your money into a real estate investment then we would love to talk you through your options and answer any questions you have about what could work best for you and your portfolio.

Get in touch

Talk to an advisor

Investing in the commercial real estate space is a great way to enjoy passive income while watching your investments grow. In an uncertain market like today, CRE investment can bring stability to your portfolio.