Things To Know Before Investing In Commercial Real Estate

Investments can be as easy as saving in a bank or as complicated as trading via the stock market. Based on the complexity of the type of investment, time and effort are expended. Investing in real estate is an option to consider for those looking for investments that involve a longer span of time.

Why Choose Investing in Commercial Real Estate?

An investment in commercial real estate typically entails an investment amount that is a large sum for any single retail investor to invest. The most common ways of investing in commercial real estate are through real estate investment trusts (REITs) or fractional ownership. 

This mode of investment reduces a load of entry into commercial real estate for retail investors by lowering the ticket size. But a reduction in ticket size does not necessarily mean an investment option is better than others.

How To Begin Commercial Property Investment?

Investing in commercial property can be done by an individual but the high amount of investment makes it hard for a single investor to invest the necessary amount in a commercial real estate entity.

The favorable method of investing in commercial properties is via investing in REITs or fractional ownership.

REITs 

These work kind of like mutual funds. There are fund directors who manage a REIT, and your Commercial Property Investment forms a part of the investment pool that's divided across multiple means. These means are named by the fund directors based on their major performance and the market dynamics. The returns from all the means are conjoined and distributed to investors based on their investment in the REIT fund.

Fractional Ownership

This helps get like-minded investors to pool their investment amounts into retaining an asset. The minimal ticket size typically stays within multiples of lakhs. Based on their threat appetite and finances, individual retail investors can enjoy one or further fragments of an asset, granting them a portion of the power. Returns from rent and capital appreciation are paid out at the rate of the power of each investor. 

The major difference between the two models is straightforward – in a REIT, doesn't matter whether you like it or not, a part of your investment could be sitting idle in an asset that doesn't attract tenants for some reason. The only way to help your investment from being an expensive paperweight will be to withdraw from the fund fully. Whereas fractional power gives you complete control over your choice of asset. In fractional power, you can still stay invested in other profit-making means and stop, vend, or trade your power bit of a non-performing asset with another.

What Factors You Should Consider Before Commercial Property Investment?

Location

Tenancy

Market Dynamics

Documentation