Types of Commercial Real Estate to Invest In
People have many options when it comes to investing in real estate. Whether you choose to rent out properties, flip old houses, purchase stocks related to real estate or join in on crowdfunding deals, you have a large selection of choices for your investment portfolio. Another beneficial investment option in real estate is commercial real estate. Commercial real estate investments come with an array of risk and reward levels depending on the type of property you invest in. Are you considering investing in commercial real estate? Learn about all of the top commercial property investments and how to start expanding your investment portfolio.
What Are Commercial Real Estate Investments?
Commercial properties are everywhere in cities and suburbs. Essentially, anything that isn't a house is a commercial property. Places like shopping malls, apartment buildings, medical buildings, grocery stores and warehouses are all examples of commercial properties you might see on your drive around town. Commercial real estate properties range in size and use, making your choice of investments vast.
Owning a commercial real estate property can help you make money. Whether you've been invested in residential properties or are new to real estate investments, commercial real estate properties could be a smart choice to invest your money.
Popular Types of Commercial Real Estate to Invest In
What are some of the most popular commercial real estate investments? You have a large selection of property types to choose from as an investor. If you're in the market for a new investment opportunity, check out some of the top commercial properties to invest in and learn why they would make an excellent choice:
1. Apartment Buildings
Apartment buildings are considered commercial real estate properties if they contain five or more units in the building. This means that everything from smaller apartment complexes to large, multi-story buildings are available as commercial real estate investments. These properties are an investment opportunity as more people find themselves renting an apartment rather than purchasing a home.
Purchasing an apartment building as an investment opportunity carries some of the lowest risk out of all commercial real estate properties. People continue to look for places to live, and apartments are some of their only options. Renting is popular among young people and older adults who don't want to maintain the property.
Investing in an apartment building has a fair amount of pros. Apartment buildings are typically easy to find, generally have a high cash flow and are one of the easiest commercial real estate options to get into. Owning an apartment building also includes certain tax incentives, an increase in equity and supplementary income. Some examples of supplementary income from an apartment complex include laundry facilities, vending machines, car wash and vacuum stations and extra parking spots.
Before investing in an apartment property, ensure you are ready for the time commitment that comes with owning an apartment building. Choosing and purchasing an apartment building can take some time, and managing employees, tenants and vendors can also take a lot of your time. But, if you're ready to handle this investment, consider purchasing this commercial real estate property.
2. Office Buildings
You can choose from various office building styles and sizes, from a single building with one tenant to a tall, high-rise building with numerous tenants. The type of office buildings you'll find available often depends on if you're purchasing in a large city, suburb or a small town. People looking for a long-term investment should consider all of the possible benefits that commercial office buildings can provide. Office building tenants often commit to long-term lease agreements, resulting in a guaranteed amount of income for a long period. Office tenants often request many custom improvements to fit the space to their specific needs, so long leases help make these improvements worthwhile for you as a building owner. Most properties appreciate in value over time, and they provide beneficial tax incentives.
A helpful tip for investing in an office building is starting with a smaller building and working your way up to a larger, skyscraper-type office building. You'll learn how to manage these types of commercial properties and see how you can benefit from this type of investment. You may also get involved in crowdfunded office building investments for larger office building investments.
3. Self-Storage Facilities
Some people may not consider the niche commercial investment opportunity of a self-storage facility, but this real estate property is growing in popularity among investors because of its unique benefits. If you're considering options to diversify your investment portfolio, check out what a self-storage facility investment can provide.
Self-storage facilities are an appealing option for investors because of the possible high-income potential with minimal overhead. Investors rarely have to worry about ongoing management tasks, and self-storage often comes with low construction costs. You can purchase small or large self-storage facilities that include storage units of various sizes that people can rent for typically month-to-month leases. Some self-storage facilities can also offer storage for large vehicles like RVs and boats.
Since you won't have any tenants living at the facilities, there is less time commitment to self-storage properties. You can run this business without having to make repairs or fixes like painting walls, installing carpet, fixing plumbing issues and other common management tasks in residential investments. These investment opportunities also may include lower building and construction costs, nearly self-sufficient facilities, increased demand for storage units and short rent terms that allow for quicker rent increases.
When renters leave their storage unit, clean-up is relatively simple, and you can welcome a new tenant quickly. Make sure you select a self-storage facility in a prime location that will draw in many renters.
4. Mobile Home Parks
Another commercial real estate investment opportunity to consider adding to your portfolio is a mobile home park. Mobile home parks offer options to make money with interesting benefits.
In this current market, the demand for real estate is high in many asset types, even in mobile home parks. Mobile homes are an option for people looking for affordable housing, and mobile home parks offer an appealing investment opportunity. Mobile home parks often include the possibility of a high return with lower maintenance and management costs. Overall, this property type is often an affordable option for investors.
Mobile home parks collect rent by leasing out lots to people who either own or rent their mobile homes. A big benefit of mobile home parks is that the cost per unit is low. Owning a mobile home park means you own the land that the mobile homes are on, not the units themselves. So the price per unit is usually lower than other residential options.
Maintenance and management costs are low for this commercial real estate opportunity. Owners of the mobile homes are responsible for repairs on their homes because they own the unit. The park's owner is responsible for the management and upkeep of the grounds.
Mobile home parks also have a low turnover rate and less competition. Many mobile homeowners plan to stay at their lot for a long time compared to apartments and other multi-family properties. The competition for purchasing and owning a mobile home park could be lower than other commercial properties, so you can often find reasonable prices and add value to the property you purchase.
5. Retail Centers
A commercial real estate option that has a lot of investment potential is a retail or shopping center. Various sizes and types of retail centers are available to investors. From small shopping strips to large mall complexes and indoor or outdoor facilities, retail centers offer an interesting investment opportunity to people looking to add more to their portfolio.
Investors like retail centers because the tenants often sign long-term lease agreements. A diverse shopping center will offer stability to your investment because it's unlikely that various types of businesses would decline at the same time.
One of the most important aspects of a retail center is the location. The location of the retail center you want to purchase is a major consideration of your investment decision. You should research the area of the shopping center you're considering purchasing or building and account for traffic patterns, parking and local demographics.
When you're filling vacancies for the retail center, consider researching companies and see if they would succeed at your center. It's important to have good tenants in your retail center so they attract business and continue to rent space from you.
6. Industrial Buildings
Multi-tenant and single-tenant industrial buildings are commercial real estate options you can consider adding to your portfolio. Multi-tenant industrial buildings generally house smaller businesses, like local businesses or branch locations, helping diversify your tenant base. Diversity in your tenants can help protect your investment since the chances of all your renters needing to leave their leases at the same time is low.
Single-tenant industrial buildings generally house one large corporation. Larger corporate companies could require more tenant improvements but are also more likely to sign a long-term lease.
Why Should You Invest in Commercial Real Estate?
Investing in commercial property is a beneficial option for many investors. Whether you're new to the investment world or have a portfolio of mostly residential properties, commercial real estate could be a smart place for you to invest your money.
Check out some of the most appealing reasons that lure investors to commercial real estate options:
1. High Reward Potential
People invest their money to make more of it. Commercial real estate properties often have high cash flows and a high potential for success. Bigger buildings and facilities come with a higher purchase price and a higher rent price. With the right investment, the high rent price can potentially lead to a high return. Rather than a couple of hundred dollars a month from a single-family renter, you could make thousands from tenants in apartment buildings, office buildings, mobile home sites and other commercial buildings. Commercial real estate properties also allow you to grow your equity.
2. Less Competitive
The competition for residential properties is typically much higher than for commercial real estate properties. It's much easier to take your time and search for the right investment opportunity when you're looking for a commercial property. Investors will also notice much better deals and rates for commercial properties. Prices and competition will always vary by location and the economy more generally, but investors can usually expect the competition for commercial real estate to be lower than other investment options.
3. Large Selection of Investment Opportunities
As you've learned, you have many investment opportunities to select from when you decide to search for commercial real estate property. From a towering office building to a neighborhood retail center, you can easily diversify your portfolio with the large selection of commercial real estate opportunities you have access to. Diversification in your investment portfolio is essential as it helps stabilize your returns from your investments and protects you against any losses you may encounter. Investors will find a lot of flexibility when they decide to place their money in commercial properties.
4. Tax Benefits
Commercial real estate investments all come with certain tax benefits that investors find attractive. One of the tax benefits that investors find useful is depreciation, which lets you deduct a portion of your commercial property's value from your yearly taxable income. You may find that the total tax burden can decrease drastically. Investors can look into other tax advantages from investing in commercial real estate, like deferring capital gains tax.
5. Opportunity for Professional Relationships
Many investors decide to purchase commercial real estate with a limited liability company (LLC). Having a business name aids communication and business deals, especially when working with tenants who are businesses, like in shopping centers, office buildings and warehouses. When you lease out to other businesses, using a business name allows you to interact with them professionally.
6. Tangible Asset
Investing in commercial property means placing your money in a tangible asset. Tangible assets are easy to measure and work on because you can physically look at your investment and see the goods and services the real estate is providing. Other investment opportunities like stocks are an example of a non-tangible asset. While you can witness the rise and fall of property values, your asset will still stand in front of you. Commercial property will always hold some amount of value. Even with economic shifts and other variables that impact the value, properties won't hit zero.
New Trends to Consider
A few new commercial property trends are worth researching. Consider looking into them and seeing if you want to add them to your portfolio:
- Micro-apartments: Popular among young millennials and students, micro-apartments are units of less than 500 square feet. You can typically find these tiny units in cities close to shops and restaurants.
- Co-working building: Another space that is popular in cities is co-working buildings. Freelancers and other small businesses utilize these spaces that replicate a traditional office space. The space is usually open with plenty of tables, chairs, cubicles and other pieces of furniture so people can find a spot to be productive and work.
Learn More About 1031 Crowdfunding
Needing assistance finding your next investment opportunity? The experts on 1031 Crowdfunding's management team have the knowledge to help lead you through finding a commercial real estate property. Register to join the crowd today and learn more about why clients rely on us for their investment opportunities.