Investing in commercial real estate can be confusing to a new investor, with dizzying numbers and jargon — making investors wary of entering the market. However, investing in institutional-style real estate is actually easier than you think—and the perks are great to boot.
Sound income potential, along with solid stability and protection to weather a downside during volatility in the market. What’s not to like? Here are some ways (and reasons) to get started.
You don’t have to be an expert
Investing in CRE doesn’t require you to be an expert at it. Here’s where sponsors come in. And no, a sponsor isn’t an advertiser. “Sponsor” is just industry jargon for asset operator who syndicates that funds and makes the deal happen.
The sponsor would become your partner to handle anything from funding to managing the investment. They manage the asset. You collect the income.
Even though you’re not managing anything, you should only investing in properties and/or sponsors you’re comfortable with. (Here are a few factors to consider.)
Another upside to investing in commercial real estate is its long-term focus. It protects your downside and is engineered to collect big returns over time.
On the flipside, if you’re just looking to make quick buck, CRE might not be the right investment space for you. Plus your money’s locked up for a pre-set contractual period — you can’t just cash out anytime you want.
How do you choose a deal?
These institutional-style deals used to be circulated among so-called “accredited investors,” an SEC distinction given to “sophisticated investors.”
The SEC put this rule in place to make sure uninformed investors don’t lose money in deals they don’t understand. But it also created a barrier for good investors who couldn’t qualify for the distinction.
The JOBS Act came around, allowing everyday investors to own a piece of assets like the World Trade Center through real estate crowdfunding. There are tons of online marketplaces that give you access to syndicated deals. And if you’re not into that? Well, there’s always REITs.