Online Commercial Real Estate Investing
What is Commercial Real Estate?
Commercial real estate includes the assets that are in the form of eateries, shops and retail chains, apartments and other establishments that generate revenue. They are listed as commercial properties on different sites for people to take on rent or lease for a particular span of time during which they generate revenue for the investor. They are also income earning models for the future as well. If they are located in a good neighborhood and the tenants pay their bill on time its price will keep on appreciating and it will depreciate if these economic factors don’t serve them well.
Online Commercial Real Estate Investing
The digital boom has opened up avenues for investors to invest on CRE properties online. With traditional real estate, the buyer needs to meet the owner in person to complete all necessary transactions. With online real estate investing in CRE’s has become a hassle free experience. Investors need not limit themselves to brick and mortar offices to conduct their business. As long as they can connect to the internet, a business can run as usual.
Why should anyone do Commercial Real Estate Investing Online?
The reasons as to why anyone should invest in CRE online are as follows:
- There is no overhead involved when investing in CRE online. You need not have an office, employees, or elaborate systems in place to become an investor. You can travel around the world and still keep up with your real estate business as long as you have decent internet connection.
- Established third party websites that specialize in real estate investments can offer you a range of projects to invest in. Be it residential or commercial, you can pick a project to invest in according to your portfolio.
- Searching for properties offline, falling under different risk profiles like core, core plus, value add and opportunistic can be quite a daunting task. With online CRE investing, such properties are already verified and sorted according to their risk profiles. You can invest in any property depending on the risk factor your portfolio can handle.
- You can become a CRE investor by meeting the minimum investment requirements for projects. You need to have huge cash reserves in place to become a player in the real estate industry.
- Online CRE investing is a hassle free experience. You are not holding inventory, you are not responsible for managing any project requirements.
Ways of investing in Commercial Real Estate online
- Using an ETF- ETF or is an abbreviation for exchange-traded fund which is an investment tool. Here stocks are conjoined to form a single fund and it functions like a mutual fund. Since it functions like a mutual fund you can invest in small amount and not on specific projects rather on the equities of different companies.
- By investing CRE mutual funds- such kind of investment offer steady lucrative returns in lieu of negligible management costs. There are mutual funds which hold both residential and commercial stocks and there are funds that specialize in commercial funds. Commercial funds leases are more detailed and elaborate than residential leases. The time period is suited to meet the needs of the tenant and often is framed as triple net. This entails that the tenants bear the burden of a part of taxes, maintenance costs and insurance charges. This mitigates the financial obligation of the owner.
- Real Estate Investment Trusts- REIT works just like a mutual fund but with more diverse holdings. There is a lot more fluidity with regard to where your money is funneled through. Make sure you check the history of a particular REITs before you invest in it. A REIT which has been long enough to see the highs and lows of market are a better place to invest in. A lot of investors would like to invest in a REIT without much diversification since they opine that one should abide by what it knows inside out other would want diverse stocks to minimize risks.
- There are companies out there who are enthused about the idea of buying shares of CREs. They are open to the idea of taking new investors in the pool and this might be a beneficial option for you where you can actively invest. They look at properties like apartments, student residences and office buildings. The return on investment is pretty great but so is the risk associated with it.
- Construction company shares- people might be intrigued about the idea of investing in virgin construction projects. Especially with the rise of urban centers all over the world, construction has peaked since 2010, so investment opportunities have also increased. By investing in a construction company, you will always be engaged because they will always be in demand, be it for an office building or retail shop.
- Loaning money- if you check crowdfunding websites like Assetmonk, you are likely to chance upon opportunities that are humble but rewarding. This is the new method of peer to peer lending. This is highly rewarding because the investors use this as a last resort when other sources have dried up. The borrowing is also a short-term fix. Online private equity firms provide equity crowdfunding platforms wherein developers can connect with investors.
The pro associated with this is that the interest is higher than normal investments and for investors, it gives them greater liquidity. However, the platforms are relatively new and many people might not be acquainted with the know-how and might not be entirely convinced about the mechanism.
There are plenty of advantages to such investments. The primary advantage is that it creates stable cash flow for any investor as they partake with their amount on a periodical basis. There are tax advantages as well. On paper, there might be depreciation of the asset while the asset continues to generate more revenue than ever. This will allow you to optimize your taxable earnings. With online CRE investing you could be digital nomad chasing adventures around the world and still keep building on your investment portfolio.
As compared to traditional investing, it provides you the freedom to invest online without even setting foot on the physical property. You are investing your money into projects with the hassle of owing any tangible responsibilities.
Online CRE Investing FAQs:
It is a fraction of two parts comprising of operating income and the existing value of the property. This helps understand the return on investment better.
You can join online communities where senior investors and other stake holders communicate freely or you can attend events designed for the meeting of different stakeholders.
The gradual repayment of the installment of the bank where the principal amount also decreases slowly is called amortization. This makes sure that the property does not have a debt obligation in the future.
Cap rates are decided by a plethora of investors upon seeing a property and the type of it and how much they will be willing to pay for it taking into consideration its operating income and location.
What the seller has to basically do is to inflate the net operating income or to use a cap rate that is below the rate determined by market forces.