Last year’s surge in demand within the real estate market led to a nationwide shortage of property that only started to lift recently. The demand (and the profits) became so substantial that it’s no surprise that just about everyone started looking into how they could get a piece of the action. And with a relatively low barrier of entry, especially for commercial real estate investing, it doesn’t take a lot of capital to get started.
But before you start thinking about doing a little commercial real estate investing yourself, you need to know what taking on this type of investing means. Lucrative as the field is right now, the way to make your investment in commercial real estate work out is to know what’s required of you as the investor.
There are two ways to get into commercial real estate investing. There’s active investing and passive investing.
1. Active Commercial Real Estate Investing
Active investing is characterized by the investor taking a more hands-on approach to the investment. The property gets purchased for direct use in generating active income, such as rental income, which pays out every month. All kinds of residential and commercial property can fall under this form of investment.
Active participation in the commercial investment means that you, as the investor, must put in your time, capital, and risk. This type of investment requires more effort and work on your part, such as making decisions about financing and maintenance. Furthermore, because the active investor acts as the personal guarantor of the loan, the risk falls on them.
But you also get more control over the investment as an active investor. If you have enough time to handle the decisions or be hands-on in looking after the property, it could become an excellent way to get the most out of your investment.
2. Passive Commercial Real Estate Investing
If you prefer not to have as much risk in your investment, passive commercial real estate investing may be a better fit for you. It’s a hands-off experience; you don’t have to spend as much time, and you won’t need as much capital to start. Many people have turned to this form of investment as a way to support their retirement funds.
Passive investing enables you to put in your money in a piece of property that you might not have been able to afford previously. Real estate investment trusts (REITs) are one way to do this. The investors put in their money as a group to a larger piece of commercial property, such as a mall, office buildings, or a hospital.
The only downside to this type of investment is that you will have less control. It may be an uncomfortable concept for some people as they won’t have much say over suppliers, contractors, maintenance, and other issues surrounding the property.
The property manager might also take a small percentage of the rental income you receive. But for many passive investors, it’s worth it—this type of investment needs minor work on an excellent payout every month.
What’s Right for You?
There is no “right” or “wrong” way to invest in commercial real estate property; what’s important here is that you invest in a most comfortable manner to you as an investor. Do you prefer to be more hands-on and have a bigger say with what goes on with the property? Are you alright taking a step back and letting property managers handle the property but take less income?
Active or passive commercial real estate investing can work out for you depending on what you prefer and how much risk you’re willing to take on.