Should You Purchase Commercial Real Estate or REITs?

pieces-of-the-puzzle-592781_1280Investing in commercial real estate can be an extremely profitable venture. This sector includes properties such as retail stores, office buildings, industrial property, medical centers, hotels, farmland, multi-family housing or apartment buildings, warehouses, garages, and retail malls. If you are considering making an investment in commercial real estate, there are many well-positioned options for you to choose from. Serious consideration needs to be given to the type of involvement you would like to have, along with the financial commitment that you are able to make. We have outlined two excellent investment strategies in the commercial real estate arena, providing you with the key points for each option.

To many people, making an investment in commercial real estate involves purchasing and managing a building or buildings. This traditional method may work well for some investors; however, it is crucial to be aware of exactly what is involved in this type of commitment. Owning commercial property encompasses a hands-on approach.

The investor must spend time and resources to locate suitable properties and negotiate on purchase prices. Once purchase agreements are in place, the investor is responsible for entering into a mortgage with a lender. That is unless the investor happens to have cash assets. Typically, a twenty percent down payment is required, which can add up to large sums of money. For example, if the purchase price is $5 million, the twenty percent down payment is $1 million.

In addition, investors must be responsible for the monthly mortgage payments, property taxes, insurance, maintenance, and management fees. The bottom line is the bills are due even if there are no tenants to pay the rental income.

On the other hand, purchasing Real Estate Investment Trusts (REITs) is a great method for commercial real estate investors that are looking for a less involved approach. You do not need to think about management, liability issues, or working with tenants. When people invest in REITs, they are buying shares of companies that specialize in owning, operating, and managing commercial properties.

REITs trade on major stock exchanges, such as the New York Stock Exchange (NYSE). Investors are depending on the expertise of the REITs management teams to secure their investments. With a REIT, the investor is not responsible for making any monthly payments; in fact, most REITs pay regular dividends.

Additionally, investors are able to liquidate the investment extremely quickly; however, you cannot borrow against the asset. The investment may be as short term as selling the same day, or can be held in a portfolio for years on end, providing investors with extreme flexibility.

Written by GilverBook Team