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