10 Ways to Make Money in Commercial Real Estate
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
Commercial real estate is one of the best ways to generate serious returns and create long-term, sustainable wealth, and it’s not just for the ultra-rich.
While many believe that the commercial sector is only for seasoned real estate investors, the truth is that there is ample opportunity for anyone willing to learn. To help you get started, here are a few different strategies for making money in commercial real estate.
#1 – Become A Landlord
One of the most common ways to profit from commercial properties is to become a landlord. Like in the residential real estate sector, you can buy a commercial real estate property and rent it to tenants to collect passive cash flow. The only difference is you’ll be renting to businesses instead of individuals, but the concept remains the same.
You may consider many different commercial investments, including:
- Office buildings;
- Retail spaces;
- Shopping centers;
- Warehouses;
- Industrial facilities;
- And more.
Even multi-family apartment buildings are considered commercial properties if they have more than four units. With so many different types of properties, there is unlimited opportunity to build wealth in commercial real estate.
#2 – Become A Limited Partner (LP)
Becoming a limited partner in a commercial development is another great way to become a commercial real estate investor with limited risk. A limited partner invests their money in a project, but their liability is limited to only their investment. They have limited control over the day-to-day business operations of the project. However, they are not personally liable for the debts of the company.
Becoming a limited partner is great for those with some spare cash and who want access to lucrative investment opportunities but don’t want to assume the same personal liability that comes with organizing and managing an investment.
#3 – Commercial Real Estate Wholesaling and Flipping
Wholesaling and flipping is a common strategy that can be even more profitable in the commercial sector than with residential properties.
Flipping involves:
- Finding undermarket properties;
- Buying them at a reduced purchase price; and
- Doing the necessary renovations and selling the property at a higher price.
Wholesaling involves scouting under-market properties on behalf of a flipper and selling them the purchase contract at a markup. Wholesaling real estate for beginners is beneficial because it doesn’t involve as much risk as other methods.
Although the market is slightly different, it’s the same strategy as flipping or wholesaling single-family homes. You’ll need to do your due diligence to ensure you understand the commercial real estate market and different price points, but this can be a great way to see significant returns relatively quickly.
#4 – Become a Commercial Real Estate Agent or Broker
You may also become a commercial real estate broker and work directly with businesses needing spaces or a landlord looking for an investment property. You will need to acquire your real estate license and find a brokerage to sponsor you. It may be wise to start out as a residential agent and work your way up to more complex deals.
Although, selling commercial real estate is a great way to learn the ins and outs of the business and prepare you to make smarter investment decisions if you decide to one day put up your own money.
#5 – Real Estate Investment Trusts (REITs)
Real estate investment trusts (or REITs) are a great way for anyone with some spare cash to invest in many different types of commercial real estate. A REIT is a company that purchases and manages income-producing real estate. Retail investors purchase shares in the REITs and earn dividends based on the performance of the assets owned by the company, much like a stock.
There are many REITs: Some are diversified across the entire real estate market, and some have a specific focus, such as healthcare facilities or office spaces.
REITs are a great way to create a passive income stream from commercial real estate without any hands-on involvement in the purchase or property management. Plus, they offer more liquidity than other types of investments because you can sell your shares anytime.
#6 – Invest in a Commercial Syndication
Commercial syndication is another great way for those with discretionary income to become CRE investors. Syndication is when a group of investors all pool their funds to make a large purchase. Although, the price tag is one of the biggest barriers to entry to commercial real estate investing.
Most average people can’t afford the down payment on a multi-million apartment complex or shopping center, but they may have friends or colleagues willing to invest for a share of the profits.
Commercial syndication is a great way to diffuse the risk of investing in commercial property across a larger group, giving ordinary people access to deals they couldn’t afford on their own.
#7 – Invest in a Private Equity Fund
Investing in private equity funds is another common way to profit from commercial real estate. Established private equity firms have the track record and credentials to access large investments and provide consistent returns to investors.
These firms specialize in buying and restructuring companies or commercial investments with a weak balance sheet before ultimately selling them. This technique can be very lucrative but can also get quite complex.
Investing directly in private equity funds requires substantial capital, typically in the millions. It’s generally only for high net-worth individuals, but even regular investors can get in on the action by investing in other funds that purchase shares in private equity firms, such as ETFs and SPACs.
#8 – Hard Money Lending
Hard money lending is another interesting strategy you may consider. It involves acting as a lender for someone who can’t qualify for a commercial mortgage but needs capital for an investment. Hard money loans are secured by the property itself and typically feature a higher interest rate than a conventional mortgage. However, they are usually only short-term and involve riskier borrowers.
Hard money loans are most commonly used by flippers who want to avoid the early repayment fees required by a conventional mortgage. Although, they can be used by any number of investors who need fast access to capital.
Becoming a hard money lender can be somewhat risky, but it’s also very profitable for those with the know-how and capital available to finance deals.
#9 – NNN Lease Investing
A triple-net lease is a specific commercial real estate lease offering additional rental income for landlords. With a NNN lease, the tenant pays not only the rent but also the taxes, insurance, and maintenance on the space, which means less work and more profit for the property owner.
Large corporate tenants who want greater control over renting space often prefer this type of lease.
For instance, Walgreens may want a NNN lease for spaces they rent, so they can do construction on the interior to make it look like all their other locations. Landlords typically don’t allow major alterations with standard rental properties, but if the tenant agrees to pay the additional carrying costs, then there’s usually more flexibility.
Although buying NNN lease properties can get complex, they do offer major incentives for investors, including less maintenance and more operating income.
#10 – Crowdfunding
With the rise of the internet, new ways of investing and connecting with other like-minded individuals have increased in popularity. One of those methods is crowdfunding, which refers to the practice of funding a project or venture using small amounts of money from a large pool of investors, typically over the internet.
Some websites allow you to invest in large commercial real estate deals for as little as $500. The investment is usually managed by a seasoned professional who collects funds from many smaller investors and distributes the profits evenly.
While you may not see the same kinds of returns as some of the other methods listed, crowdfunding is a great way for anyone to get started investing in commercial real estate in a way that is accessible and low risk.
Commercial real estate offers many advantages, including substantial returns and tax benefits. No matter where you are on your investing journey, it’s always wise to learn a bit about commercial investing if you want access to more deals that can radically transform your net worth.
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