Statistically speaking, the share of the Indian commercial real estate market is expected to elevate from 7% in 2019 to 13% in 2025. This robust growth is what drove the investors toward the industry in the first place, and it continues to do so. Commercial Real Estate Investment is an exquisite way of getting high returns along with the added benefit of portfolio diversification. However, you might get curious about the ways in which you can invest in commercial real estate.
We’ve got you covered. Read on to find out about the top 3 ways in which you can invest in commercial real estate.
Why Choose to Invest in CRE?
- Potential for high returns: CRE investments have the potential to generate higher returns compared to other asset classes, such as stocks or bonds. This is because of the potential for rental income and property appreciation over time.
- Portfolio Diversification: Investing in CRE can provide diversification benefits to an investment portfolio. It is often less correlated with other asset classes, which can help reduce overall portfolio risk.
- Tangible asset: Unlike other assets that cannot be touched or seen, commercial real estate is a tangible investment. As a result, investors have greater control over their investments and a feeling of security.
- Inflation hedge: CRE investments can be an inflation hedge since rental income and property values tend to rise with inflation.
- Tax benefits: CRE investments offer several tax benefits, such as depreciation and mortgage interest deductions, among others.
- Value-added opportunities: Investors can add value to their CRE investments by renovating and improving the property to increase rental income and property value.
Top 3 Ways to Invest in Commercial Real Estate
Listed below are the top 3 ways to invest in commercial real estate.
- Real Estate Investment Trust (REIT)
Companies that operate and are in charge of income-producing properties are known as real estate investment trusts. Investors can buy shares in a REIT, which provides exposure to commercial real estate without directly owning the property. REITs offer high liquidity and dividend yields but are subject to stock market volatility.
A REIT allows you to invest in a real estate asset in a similar way in which an individual buys a stock of a company. Investing in a REIT is a great way of earning a steady stream of income. In addition to apartment buildings, data centers, hotels, restaurants, and medical facilities, REITs invest in office buildings, warehouses, retail centers, and cell towers.
- Fractional Real Estate Ownership
Under fractional ownership, an investor is allowed to buy a fraction of the real estate property. By doing so, you will be able to invest in the property at a fractional rate and have a high potential for income as compared to purchasing the entire property directly.
The amount of fraction you invest in depends upon the size of the ticket and the share you wish to hold. Fractional ownership involves multiple investors pooling their money to purchase a commercial property. Each investor owns a fraction or share of the property and is entitled to a portion of the rental income and profits from the sale of the property.
Fractional ownership can provide access to larger commercial properties that may be out of reach for individual investors. It can also offer diversification benefits by allowing investors to own a share of multiple properties in different locations and sectors.
- Direct Ownership
Direct or sole ownership is considered to be one of the most straightforward and traditional ways of investing in commercial real estate. Under direct ownership, you purchase a commercial real estate property directly and become the sole owner. By owning the property, you have complete control over the management and operation of the property, as well as the potential for long-term capital appreciation. This is due to the fact that the value may increase over time due to market conditions, improvements, and other factors.
This can provide a steady stream of income that can be used to cover expenses, pay down the mortgage, or reinvest in the property. Moreover, direct ownership also provides the owner with complete control over the property, including the ability to make decisions about leasing, maintenance, and repairs. This allows the owner to tailor the property to their specific needs and preferences and to optimize the property’s performance for their investment goals.
From hotels to office spaces to warehouses, it can be a great way of investing in commercial real estate. It has been estimated that commercial properties have approximately 6-12% higher return on investment. However, being an investor, it is imperative that you weigh the pros and cons, the risks involved, and the type of property best suited for your needs. This helps you in making smart and informed decisions.
If you wish to learn more about the commercial real estate industry or how you can start investing, head over to the Bhive Alts website and streamline your investment journey.