Have you got a bit of nest egg squirreled away somewhere? Are you looking to sink your money into something worthwhile and that can generate an additional source of income? You might want to start considering real estate investments, particularly in commercial real estate. Though the market can fluctuate, real estate overall tends to be a good investment — think about why so many people are interested in owning their homes, for example. Once the mortgage is paid off and the home is well maintained and in a nice area, the value of the property can seriously skyrocket and eventually be worth significantly more than it was purchased for. Similarly, with commercial real estate, breaking into a lucrative area (or one that’s up-and-coming) can be a veritable gold mine. While you need some capital to get started, it can be ideal, especially if you don’t actually want to manage property — you can invest in a real estate investment trust. Talking real estate investment strategies is well worth your time.
What’s a Real Estate Investment Trust?
If you’re interested in getting involved with real estate investing and the mention of a real estate investment trust has popped in your real estate investment strategies, but you’re not sure what it is, read on. This kind of trust is a business that owns and often runs real estate that’s generating income. It’s often abbreviated as REIT as well. REIT’s typically deal in commercial real estate — everything from office buildings to industrial warehouses, to retail buildings like shopping centers.
This can be a great option, since they provide strong income. This is because to keep its status as a REIT, they have to distribute 90% of their taxable profits as dividends, otherwise they have to pay federal income tax. They’re also attractive to many people, given that there’s a lower entry cost to getting started, less hassle with tenants, and better flexibility in terms of investing.
What’s My Other Option?
The other option available to you in your real estate investment strategies is to invest your money directly in properties. If you’re savvy and like having complete control over your options, this might be one of the best real estate investment strategies available to you. No more going through fund managers — you control how many properties you purchase and own, how high your rent is, and who is renting your property. There also tends to be less of a tax payout with direct real estate investing, thanks to numerous tax break opportunities.
Although this can also be a potential gamble, your earning potential can be higher. If you put down more money on a property, you’re set to potentially earn more than an investor who is limited by his or her REIT. Direct real estate investment is great for those who have time and the business mind to make their hard work really pay off. With smart investments, the sky can be the limit for direct real estate investors.
What Should I Know About Commercial Real Estate Investing?
If you’re thinking about getting a loan, those who lend heavily with commercial property tend to want at least 30% down on the property before granting you the funds for the loan. Banks are likely to give you between 60-70% of the property value for commercial real estate.
Like any market, the real estate market is likely to change. The commercial real estate market tends to change in a meaningful way every five to seven years, but according to the RICS commercial market survey, the first part of 2015 marked the 10th consecutive quarterly acceleration for commercial property demand. Almost half of respondents reported greater interest. You can expect a yearly return of 6-12% of the purchase price off commercial properties, which fluctuates depending on the area.
Commercial real estate can offer a lucrative source of income to tap into. There are a few couple options available for you to decide how exactly you want to go about it, each with their pros and cons. By choosing wisely, you could set yourself up well for the rest of your life!