Investing in commercial property was formerly considered a pipe dream and is not for the faint-hearted. Commercial properties are significantly more pricey than residential buildings. Commercial properties also yield significant dividends. Similar to many other types of investments, the benefits are related to the number of risks faced. But did you know that you may buy a commercial property in ways, including fractional ownership?
What Exactly Is Commercial Real Estate?
Commercial real estate is an encompassing word for significant market sectors like office, retail, and industrial properties. Childcare facilities, apartments, condos, theatres, warehousing, and retail stores held by names such as Croma and Big Bazaar are assets in this category. Commercial real estate is used solely for commercial purposes. There are now multi-use buildings used as business and residential places.
Why Should You Invest in Commercial Real Estate?
- Income: Income potential is the most compelling incentive to invest in commercial buildings rather than rental buildings. Based on the region, external circumstances, and current economy commercial properties provide a yearly return of 6 percent to 12 percent on the investment. This is a much broader range than is normal for single-family dwelling properties of 1 percent to 4 percent.
- Professional relationships: Average business owners are frequently proud of their firms and wish to protect their livelihoods. Commercial space owners are not individuals, but rather Limited liability companies that operate the property as a business. As a consequence, the landlords and renters have a stronger business-to-business customer relationship, which helps preserve courteous and professional interactions.
- The public eyes the property: Because it affects their company, retail renters have a strong incentive to keep their shop and exterior in good shape. As a result, the objectives of commercial renters and landowners are matched, enabling the landlord to continually improve the property’s quality, and thus the value of their investment.
- Operating hours: Many businesses lock their doors at night. You operate when they operate. Except for fire alarms, late-night emergency calls, or break-ins, you should sleep without worry of receiving a call at midnight from tenants who have misplaced their keys or need repairs. These properties also have an alarm monitoring service, which means that if something happens late at night, the alarm company will notify the necessary authorities.
- Objective price evaluations: Commercial property prices are frequently easier to examine since you may obtain the existing owner’s bank statement and calculate the price. In case the seller is working with an experienced broker, the asking price should be set at a level where an investor can earn the area’s typical cap rate for the commercial office building they are interested in (office, retail, industrial, and so forth). Residential real estate is frequently susceptible to higher emotive pricing.
- Triple net leases: There are other variants on triple net leases. However, the core idea is that property owners do not require to pay property expenditures as opposed to rental properties). All property expenditures, including taxes, get handled entirely by the lessee. The only cost you’ll have is the mortgage. Companies like Walgreens, CVS, and Starbucks generally sign these leases because they want to retain a look and feel consistent with their brand, so they control those expenditures, which means you, as an owner, receive one of the lowest maintenance income generators for your money. Strip malls include a range of net leases, including triple nets, which are not commonly done with smaller companies, but these rent types are ideal and cannot get obtained with residential buildings.
Reason Why You Do Not Invest In Commercial Properties?
The commercial real estate industry is well-known for the generation of passive income. We can observe that many investors are keen to invest in pre-leased commercial real estate. It is because they give both monthly income and significant capital appreciation. Furthermore, the minimal maintenance expenses and extended lease terms add to the benefits.
“Commercial properties are expensive and priced in crores.” Yes, we hear you. That is correct. It’s also true that you can’t invest in commercial properties unless you have crores and crores of rupees. That was true ten years ago. But not any longer.
When it comes to commercial properties, it is evident that they are out of reach for most investors. Thanks to the latest emerging real estate trends, you can now invest in commercial properties with just lakhs. These new opportunities have broken down the barriers of commercial real estate investing for an average investor like you and me.
Now ready to learn how to?
Ways To Invest In Commercial Real Estate In 2022
- Fractional Ownership: Gone are the days when owning commercial property required vast sums of money. Fractional ownership gives investors a fraction of the overall property cost and gets ownership. The amount you invest, however, is determined by the overall cost of the asset and the number of owners. Fractional ownership occurs when a group of investors owns a pre-leased commercial property in portions. Let’s look at an example to help you understand. In Delhi, there is a premium pre-leased commercial property valued at Rs. 50 crore. A 50 crore investment is now only conceivable for a wealthy individual. A normal investor who offers Rs. 10 crores or less cannot own the property. But suppose a group of five regular investors, let’s call them P, Q, R, S, and T, each invests Rs. 10 crores in the same property. They become the property’s fractional owners. In India, fractional ownership is reserved for ‘pre-leased commercial buildings.’ That suggests the property is profitable. If that group of five investors owns the property, then the money created by the property belongs to them as well. Do not miss Fractional Ownership And Its Impact On Commercial Real Estate.
- Real Estate Crowdfunding: With their famous line “I get by with a little help from my friends,” the Beatles were onto something. Please bear with us. As you already know, investing in commercial real estate is costly and complicated on your own. Indeed, even skilled institutional investors co-invest with various parties to diversify their assets and reduce risk. Funding a project becomes considerably more possible when you combine your assets with a wider group of investors. Real estate crowdfunding happens when a group of investors pools resources to support a particular real estate project. It might be a project, a portfolio, a fund, or a single property. The crowd is your ally in this situation. There is power in numbers, and in the case of crowdfunding, the whole is unquestionably larger than the sum of its parts. Because real estate is incredibly capital demanding, crowdfunding is a potential alternative for financing it. Consider all the work that goes into making a structure: the design, the materials, the building costs, the labor—structures do not build themselves. When a developer or real estate expert discovers a fresh investment opportunity, they may not necessarily be able (or want) to fund the full project. Individual investors will commit funds to the project to support the remaining investment, which is where crowdsourcing comes in. Do not miss Real Estate Crowdfunding: What is it And How It Works?
- REITs: A real estate investment trust, or REIT, is a firm comprised of many investors that pool their funds to invest in real estate. REITs have preferential tax treatment, thus they must adhere to strict guidelines such as paying out at least 90% of their taxable revenue to shareholders in the form of dividends. As a result, investing in REITs is an excellent strategy to generate passive income. REITs are a viable option for small investors that don’t want to deal with the effort of identifying, purchasing, and maintaining properties themselves. Or performing all of the due diligence required to invest in a certain property on a crowdfunding platform. And it isn’t their only advantage. REITs are obligated by law to distribute 90% of their profits in dividends. Furthermore, you do not need to be an accredited investor. REITs engage in many forms of commercial real estate, including hotels, apartments, assisted living facilities, warehouses, office spaces, industrial buildings, retail shops, and others. They are required by law to be publicly traded and to distribute 90% of their earnings to shareholders. REITs are also relatively liquid assets since investors may buy shares on the stock market.
Ready to put your bucks in commercial real estate? Assetmonk is a well-known portal in India that provides real estate investment opportunities in Chennai, Hyderabad, and Bangalore. It provides feasible CRE investment alternatives via fractional ownership and crowdfunding. The IRRs vary from 14 to 21%. Our products, however, are grouped into categories to meet different economic levels of investors. The three categories are Growth, Growth Plus, and Yield.
Commercial Real Estate, A Pipe Dream A Decade Ago: No Longer The Case In 2022 FAQs
With economic activity picking up and the majority of the workforce returning to work, the demand for commercial real estate is skyrocketing. According to data, the commercial real estate market in India is expected to grow at a CAGR of around 13% between 2022 and 2027.
Residential tenants may change frequently, but commercial tenants typically sign much longer contracts, sometimes lasting decades. This ensures a consistent income from the property, making it worthwhile to invest in.