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5 Ways to Make Money in Commercial Real Estate

By Jeremy Bowman - Jul 26, 2022 at 9:04AM
Modern office buildings situated on both sides of a lovely waterway winding itself through Hong Kong.

5 Ways to Make Money in Commercial Real Estate

All about CRE

When most individual investors think about making money in real estate, they probably think about the equity in their own homes, house flipping, or the residential real estate market.

But the commercial real estate (CRE) market also offers a wide range of options for investors, including office, retail, and larger apartment buildings. If you're interested in taking advantage of the opportunities in CRE, here are five ways you can do it.

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A large modern office building.

1. Buy REITs

If you invest in the stock market, then probably the easiest way to get exposure to the CRE market is by buying shares of real estate investment trusts (REITs). These are real estate companies that are required to pay out 90% of their profits as dividends.

In CRE, investors can choose from REITs such as Vornado Realty Trust, which owns office buildings; Tanger Factory Outlet Center, which owns outlet malls; and Park Hotels & Resorts, which owns hotels. There's a wide variety to choose from depending on the sector you want exposure to.

ALSO READ: Real Estate Investment Trusts: What They Are and How to Invest in Them

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Person standing in front of For Rent sign in front of house.

2. Become a landlord

If you're looking for a hands-on way to get into CRE, you may want to consider becoming a landlord. You may be able to afford a small property in your area, and commercial rents generally offer higher rents per square foot than residential properties. However, you may also have to provide amenities like parking space, lighting, and common area maintenance.

CRE can offer tax-related benefits such as depreciation that you can use to your advantage. If you already have some experience being a landlord, you may want to consider purchasing a commercial property.

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3. Become a limited partner

Most CRE businesses are privately held, so if you're looking for a wide range of opportunities in CRE, one of the best ways is to become a limited partner in a private company. Limited partners provide capital for a business but are generally not involved in the management of the business.

You can find opportunities to become a limited partner in private businesses online or through your personal network. Still, you will need to be an "accredited" investor, meaning you have a minimum net worth of $1,000,000 or an individual income of $200,000.

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4. Invest in a private equity fund

One alternative to investing in a publicly traded REIT is to invest in a CRE private fund. Though CRE private equity doesn't offer the liquidity of a public REIT, private CRE has historically outperformed public companies and offers tax benefits that public REITs don't.

In a private equity fund, your investment will be divided across a number of properties through a "blind pool," so you won't know where the money is being invested at the time of your investment. Therefore, you should be familiar with the fund's track record and general strategy.

ALSO READ: What Is Private Equity in Real Estate?

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A large diverse crowd of smiling people in business attire.

5. Real estate crowdfunding

Crowdfunding sites offer another new way to get invested in CRE. For as little as $10, you can invest in CRE with sites like Fundrise, CrowdStreet, and Realty Mogul.

Crowdfunding sites like Fundrise can expose you to a wide range of CRE assets, including apartment buildings, offices, and retail stores, allowing you to benefit from both capital appreciation and rental income. Crowdfunding also offers the benefit of investing in CRE with only a small amount of capital.

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Real estate agent showing a customer a commercial property.

The benefits of commercial real estate

For investors looking to diversify from stocks into real estate, CRE offers consistent cash flows from rental income, gains value through property appreciation, and offers unique tax benefits through depreciation and interest expense.

If you're new to real estate, you may want to consider investing in a couple of REITs to get your feet wet. If you like what you see, taking the next step with a crowdfunding site, private equity fund, or your own property could deliver a reliable income stream and long-term capital appreciation.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Tanger Factory Outlet Centers. The Motley Fool has a disclosure policy.

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