| Investing in commercial real estate is | | | | projects. REITs were created in 1960 by |
| riskier and more costly than investing in | | | | Congress and can be a practical alternative |
| residential property - but ultimately it can | | | | to bonds. |
| be far more profitable. Whereas the stocks | | | | |
| of major housing manufacturers have decreased | | | | Most REITs specialize in certain types of |
| over the last few months, retail and | | | | property such as office buildings, hospitals |
| institutional investors have been investing | | | | or shopping centers. There are several |
| heavily in commercial real estate, through | | | | benefits of REITs: they trade in the same way |
| both operating companies and investment | | | | as stocks, so you can buy and sell them. The |
| trusts. | | | | share price can increase in value as the |
| | | | property appreciates in value and |
| The profits from commercial real estate are | | | | shareholders also get income from rents. |
| linked to a large degree to the state of the | | | | |
| overall economy - today, commercial property | | | | Not surprisingly, REITS have become |
| is a $4 trillion market, having increased in | | | | extremely popular over the last few years. |
| volume around 20% over the last five years. | | | | Another big advantage of them is the tax |
| Most smaller investors are able to profit | | | | benefits - by law, REITs must distribute 90% |
| from commercial real estate. | | | | of their income as dividends. |
| | | | |
| The potential profits to be made from | | | | There are several ways to invest in |
| investing in commercial real estates are | | | | commercial real estate without actually |
| affected by several factors. Apart from the | | | | having any capital. Subordination is the term |
| overall economy, the local economy and market | | | | for the situation in which the current owner |
| can have a huge impact, as can the terms and | | | | actually takes out a second mortgage on the |
| length of any lease, the reliability of | | | | property to cover the difference of the |
| tenants and the overheads involved with your | | | | amount that the purchaser has available in |
| property. | | | | the form of a loan. |
| | | | |
| Generally speaking, when investing in | | | | Another method is to persuade the owner of |
| commercial real estate, to make a profit you | | | | the property to release some acreage. That |
| should ideally have a long term lease from a | | | | section of land can then be used to borrow |
| major tenant. Finding the right tenant isn't | | | | money to cover a down payment on the rest of |
| always easy - most commercial real estate has | | | | the property. Many property owners don't |
| relatively few potential tenants unlike | | | | even know this option exists and it can be an |
| residential property. | | | | effective strategy when dealing with raw |
| | | | land. |
| During a recession, commercial foreclosures | | | | |
| and vacancies tend to increase significantly | | | | Another method is to purchase commercial |
| more than residential properties. And if | | | | property by means of a partnership. If you |
| commercial properties remain vacant for a | | | | are able and willing to do the work, you may |
| long period of time, owners may lose a lot | | | | be able to find a partnership that is |
| of income and be forced to resell for less | | | | willing to finance your deal - in exchange |
| than the property is worth. | | | | for a percentage of the profits, of course. |
| | | | |
| One method of generating a profit from | | | | Investing in commercial real estate isn't |
| commercial real estate is to look at REITs | | | | for everyone. But the profits can certainly |
| (Real Estate Investment Trusts). These are | | | | be made for those who are prepared to take a |
| traded securities which allow an investor to | | | | calculated risk, have the expertise - and |
| take part in large scale commercial | | | | perhaps a little bit of luck. |