In the world of commercial real estate investing, properties are known for being investments of the elite. Many uninitiated investors fob off the investment avenue as too expensive because the costs of a high-quality commercial asset seldom drop below a million dollars.
What if that’s not necessarily the case? When it comes to commercial property investment, how much money do you need?
Prior to investing in commercial real estate, it was common to ask how much loan they need to finance their properties. It’s hard to predict the answer. Prior to understanding the situation, a lot of factors must be considered.
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How Much Do You Need to Invest as a Solo Investor?
Commercial real estate investments in the big leagues typically cost more than $5 million. However, many investors can find smaller commercial real estate for around the same price as a modest home, starting at about $500,000. As a solo investor, you should consider the bank’s involvement when determining how much money you’ll need.
The bank will usually contribute between 60% and 70% of the property’s value for commercial real estate investments. A $1 million purchase will require you to put up at least $300,000 to $400,000 of the down payment from your own income, while the bank will cover the rest.
Depending on your budget, you might want to reduce the amount of borrowed funds in order to take home a larger chunk of the pie and generate a larger cash flow on your investment.
It is important to note that, regardless of the amount of your mortgage, the above scenario does not include the acquisition costs involved before you become an owner of a commercial building. The additional costs can include:
- The stamp duty and transfer
- The lodgment fee
- The valuation costs (the bank is responsible for ordering, but you pay for them)
- The legal and settlement
- The technical due diligence
As a final note, it does not include the amount you need for a reserve fund, which will serve as a financial safety net in the event that unexpected capital expenditure is required during the life of your property.
Reserve funds amounts are not set in stone, but due diligence, the most critical stage of the acquisition process, should provide a reasonable estimate of future costs.
How Much Do You Need to Invest in a Real Estate Syndicate?
For time-strapped investors or those who cannot come up with the funds on their own, syndicating has become one of the most popular methods of investing in commercial real estate. In a commercial real estate syndicate, the minimum investment amount varies from $10,000 to $250,000.
It’s likely that you’ll be investing alongside other investors if the minimum investment amount is modest, such as $10,000 to $50,000. Although the entry barrier is low, you will not receive the one-on-one treatment you would from syndicates with larger minimum investments.
Types of Commercial Real Estate You Can Invest In
Generally, commercial real estate is classified into one of five asset classes. Each class of commercial real estate also has sub-classes. These include the following:
Retail properties range from small storefronts situated in prime locations for commercial real estate to power centers and factory outlets.
A retail space is rented to tenants who sell consumer goods and services. Grocery stores, clothing shops, hair salons, and insurance agencies are common retail tenants.
Commercial office buildings can be single-tenant properties, such as a doctor’s office space, a mid- or high-rise building in the center of a city, or a large office campus consisting of several low-rise buildings.
There are many types of industrial buildings, from warehouses and distribution centers to factories and manufacturing plants.
Among those types are refrigerated and cold storage facilities, as well as data centers and flex buildings that combine office and industrial space.
The real estate business categorizes properties with four units or less as residential properties, while those with five or more units as multifamily commercial real estate properties.
The special purpose asset class is often described as a catch-all category, but it is also a very profitable commercial real estate investment.
These properties include student housing, senior living projects, car washes, free-standing banks, schools, and religious buildings.
Get Started Investing in Commercial Real Estate
Many people underestimate the amount of money needed for investing in commercial real estate vs. residential real estate.
Partnering with a professional commercial real estate company allows you to easily diversify your portfolio and gain access to robust cash flows, tax benefits, higher returns, and inflation protection.
Invest in commercial real estate funds that have low volatility with Saint Investment Group for long-term asset security and appreciation. We are happy to provide you with more information about our commercial real estate investment opportunities.
Contact us at 949-881-7128 at Saint Investment Group today!
President of Saint Investment Group
Nic is a two decade seasoned expert in investing and capital raising, specializing in Real Estate and debt markets. With Saint Investment Group, he leads large-scale distressed asset purchases and innovative syndications for investors.