It is widely known that commercial real estate investment trusts (REITs) produce stable and increasing returns. Investors of all income levels have turned to real estate for investments—from private homeowners to businesses operating investment organizations.
In general, a portfolio with numerous properties is safer than one with just a single or a couple of properties—and it is more stable for the investor to spread the investment burden than to invest alone. This is where commercial REIT investment comes into play.
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Commercial REITs are real estate investment trusts that place funds exclusively in income properties, such as office buildings, restaurants, parking lots, hotels, conference centers, and more.
It is possible for an investor to make a lot of money in commercial property—especially when there is more than one income-generating business tenant in a building. However, the threshold for investing is quite high for individuals.
Investing in REITs allows shareholders to pool resources and buy profitable, stable commercial properties and then share the profits. REITs store their properties in trusts, which then jointly hold the titles and manage the assets.
REIT investing was created by Congress in 1960 and can own office, retail, industrial or multi-family properties such as apartment buildings and residential complexes.
Commercial investment properties are often purchased and held by investors to earn income through rental income and accumulate capital gains through property appreciation.
Commercial real estate has become more accessible to everyday investors due to these special investment vehicles. Because income properties require so much capital to own and maintain, institutions and wealthy individuals were the only ones who could invest in them.
Since REITs are regulated securities, they must meet certain Internal Revenue Service (IRS) standards that reduce investor risk. The following requirements must be met:
There are three types of real estate, these are residential, industrial, and commercial.
Commercial property is a place where business activities are carried out, including an office building, a hotel, a manufacturing building, a convenience store, and so on.
Since they provide higher returns than residential properties, commercial REITS are considered good investments. This, however, means that investors will need to invest a great deal of money into setting up real estate properties and customizing each unit according to the preferences of every tenant.
Investments in income properties can be made either directly through the ownership of real estate properties or indirectly through shares of REITs that invest in commercial properties.
For new construction or acquisitions of existing commercial properties, direct investment requires a considerable amount of capital. Investing in commercial real estate entails a high level of risk and high returns.
A person who invests directly in such properties must possess significant knowledge of the industry and a large amount of capital.
Investing in real estate indirectly is the most popular method of investing without having to spend too much money or be directly involved with the property. Real estate investment trusts that specialize in income properties allow investors to own commercial real estate.
In the same way that stocks and bonds are purchased, REIT shares are developed and owned by investors. Investing indirectly means that no mortgage will be required to own properties, as is the case with direct investments.
Commercial REITs aren't right for everyone, but when evaluating if they are right for you, there are some things to consider.
Buying shares of a REIT is an attractive way to build a commercial real estate portfolio without actually owning or managing a property.
While other real estate investment vehicles offer many opportunities for profit, when you consider the cost of your time, REITs enable investors to invest passively while spreading out the risk across all shareholders.
Our team is here to help you understand what is a REIT better! We are experts at investing in commercial real estate, and we inspect each property thoroughly before selecting it for investment, providing you with greater security.
To leverage the expertise of our commercial real estate team, contact us at 949-881-7128 at Saint Investment Group today!
A master in Investment, Marketing, and Capital Raising.
Nic has honed his focus on the Real Estate and debt markets with Saint Investment Group and pursues large-scale Distressed Asset purchases with his partners and syndications.