Before we talk about different real estate investment strategies, let’s recap a few things: Commercial multifamily investments are a type of real estate investment that can be made by both individuals and businesses. Commercial multifamily investment can thrive in any area where there is demand for space for businesses and homes. The investment in properties can also be viable in regions with high economic growth potential. Click here to see 9 reasons to invest in commercial multifamily.
How to Invest in Real Estate
Commercial multifamily investment should be your top priority if you are looking for ways to be a real estate investor as multifamily property investing ensures a steady stream of cash flow.
If your decision as an investor is in the line of commercial multifamily investments, you can achieve it either actively or passively.
In active property investing, potential investors can form a limited liability company and find a property independently.
To identify the property, underwrite it, perform due diligence, obtain financing, close the deal, and manage the property, investors must possess some experience, resources, and ample time.
Passive property investments allow investors to outsource a professional agent or firm to acquire and manage their multifamily properties.
Passive investment is the best option in commercial multifamily investment because you get experts in real estate working for you. They increase your potential investment returns by purchasing high-quality multifamily apartments.
Strategies For Real Estate Investing
Due to the increase in demand for occupancy, commercial multifamily investment is a viable solution. Multifamily property investment can be via real estate investment trusts. Strategies for real estate investing:
• Real estate investment trusts (REITs)
• Real estate investment groups
• Real estate limited partnerships
• Real estate mutual funds
Strategies for Real Estate Investment: #1
Real estate investment trusts (REITs)
Real estate investment trusts (REITs) own and operate hundreds of apartment complexes, shopping centers, office buildings, and other properties across the country. Most REITs own only a few dozen properties at any given time, but they benefit from economies of scale that allow them to keep costs low while providing investors with steady returns.
Here are three types of REITs to consider:
Publicly traded REITs
They are eligible to trade on the New York Stock Exchange and the Nasdaq Exchange. It requires the following changes: A brokerage account, registration with the U.S. Securities and Exchange Commission, and audited financial reports.
Public non-traded REITs
They must register with the Securities and Exchange Commission and provide audited financial reports.
They are not eligible to trade on the stock exchanges. You can purchase public non-traded REITs through your finance manager or online real estate platforms.
Private non-traded REITs
They don’t need to register with the Securities and Exchange Commission. In most cases, they’re only open to high-profile individuals with higher income.
Advantages of REITs
Compared to other stocks, REITs pay high dividends and offer you a diversification from the stock market. Commercial multifamily investment through REITs protect investors from double taxation because they don’t pay federal corporate income tax.
REITs have potentially high returns on multifamily investment and offer greater liquidity than owning real estate outright.
Public REITs are transparent and provide audited financial statements. Lastly, REITs are cheap as compared to buying commercial real estate outright.
Disadvantages of REITs
• Higher tax liabilities because REITs pay nonqualified dividends.
• A change in interest rates can affect REITs.
• REITs face high potential property-specific risks. Such risks include tenant move-outs, industry headwinds, and technological disruption.
Strategies for Real Estate Investment: #2
Real estate investment groups (REIGs)
Real estate investment groups (REIGs) are a popular way to diversify and grow your real estate portfolio. These groups typically consist of multiple real estate investors with a pool of resources to buy, manage and sell properties.
Investment in properties under real estate investment groups allows you to invest and hold physical real estate without a high initial investment cost. You can access the expertise and experience of other investors to help you make informed decisions about how to invest in real estate.
Subsequently, REIGs save time by promoting sharing of tasks among members or hiring agents to manage the multifamily investment. It can also diversify your portfolio by providing a wide range of physical assets to consider for property investing.
With REIGs, we can learn how to buy and operate real estate without the expense of buying, managing, and renting all the properties yourself.
Commercial multifamily investment through REIGs has some shortcomings. There is no guarantee for high returns as it depends on the group’s knowledge, and some groups might have malicious members or interests.
Cases involving conflict of interest may arise, and the subscription or membership fee can reduce your total returns. Some REIGs contracts make it difficult for you to withdraw your money.
Additionally, If you buy into an REIG, you’re essentially taking on the risk that the other members won’t follow through with their commitments. Also, depending on REIG for advice about how best to invest in real estate could put our wealth at risk — if they don’t give good advice or aren’t honest about their ability to help us succeed as investors.
Strategies for Real Estate Investment: #3
Real estate limited partnerships (RELP)
RELP is a real estate investment fund that allows you to invest in properties and sell them soon after acquisition.
On many occasions, professional real estate investors and brokers with experience buying and selling properties hold the RELPs.
RELPs can be structured as either single-family homes or commercial multi-family investments, depending on the type of investors they attract.
The RELPs management company manages the buying and selling process while providing ongoing financial support to both parties involved in the transaction.
Strategies for Real Estate Investment: #4
Real estate mutual funds
A mutual fund is the simplest way of investing in properties making it one of the most attractive real estate investment strategies for beginners. Active mutual funds tend to be less expensive when investing in real estate because professionals manage them.
The manager ensures all the investments are adequately diversified across different asset classes while you only collect dividends.
In passive mutual funds, the investor tracks and works to match a benchmark index in the market.
Why You Should Consider Investing in Real Estate
Real estate investment is a great way to generate passive income and build wealth. Investing in multifamily real estate can be a reliable source of additional monthly income, reduce wealth risks by diversifying your portfolio, and be the best way to control your physical properties.
In commercial multifamily investment, you can acquire long-term equities and wealth. It also allows you to own passive investments that agents can manage on your behalf.
Housing as an investment in commercial real estate is growing in popularity. It offers the opportunity for greater control of your investment, provides more flexibility, and can often be a more manageable and less expensive method of building wealth.
The best part about commercial multifamily investment is that you don’t need to worry about tenants or maintenance. You can build or hire a management team to handle your investment in properties. To get started on how to be a real estate investor, contact us today!
