Purchasing a commercial property (or multiple properties) and renting out the spaces is a straightforward way to increase your monthly cash flow. The more you can charge for the commercial space, the greater the profits will be after you deduct out your mortgage, maintenance costs, and additional expenses.
But before you decide to take on passive income investing, it’s important to do your research to make sure this is the route you want to take to reach financial freedom.
What is Passive Investing?
When it comes to real estate, passive investing refers to putting an upfront cost into a property and having a relatively automated income stream. However, it’s important to note that while passive investing does mean you aren’t playing an active role in the business, it doesn’t mean you won’t ever have to do anything about your commercial property investment. With passive investing, you benefit financially when the commercial property is successful.
Active vs. Passive Investing
Active investing is when an investor personally purchases a property for rental cash-flow or to fix and sell for a profit. The property could be anything from an industrial warehouse to a large multifamily property. Active investors are hands-on in every aspect of the deal including finding the property, personally guaranteeing the loan, and managing the investment.
Active investing requires confidence that whoever is investing the portfolio will know exactly the right time to buy or sell. Successful active investment management requires being right more often than wrong.
Passive investors take a more hands-off approach. Their own involvement is limited while they simultaneously try to maximize their returns. Passive investors are more likely to “buy and hold” while active investors are focused on short-term gains and opportunities.
However, it’s important to note that while passive investing does mean you aren’t playing an active role in the business, it doesn’t mean you won’t ever have to do anything about your commercial property investment. With passive investing, you benefit financially when the commercial property is successful. As you may have already guessed, rental properties represent the epitome of passive investments. Done correctly, and with the help of a property management company, these investments can produce a significant cash flow with little effort.
Getting Started with Passive Commercial Investing
Define Your Investing Goals/Objective
For beginners looking to get into commercial real estate, first define your investment goals. What are you hoping to achieve with your investment? How much capital are you willing to invest? How involved would you like to be in the process? Defining your “why” early on will help you later in the process when deciding on which properties to invest in.
Consider your Commercial Real Estate Options for Investing
Next, you’ll need to decide what type of real estate you want to get involved in – residential or commercial. Residential investors work with individuals looking for a single-family residence, while commercial investors work with a variety of property types such as multi-family, office, and retail space.
If you’re looking for investment opportunities with higher earning potential, then commercial real estate is the path to take. While residential properties are easier to occupy or sell than commercial properties, commercial investments tend to earn a higher commission — leading to a much higher earning potential.
Secure the Proper Financing
After deciding the type of real estate you want to get involved in, next you will want to secure the proper financing. This will enable you to know what you can afford and also help you save money in hand to facilitate a deal quickly and efficiently.
Commercial real estate is often more expensive than residential real estate. Proper financing is key to securing the right investment property. Chat with your financial institution or financial planner about your options. Most banks offer traditional real estate investment loans but there are alternative options such as partnership investing, real estate crowdfunding, etc.
Hire the Right Professionals
Investing in real estate isn’t the path for everyone and getting started can be challenging. While you can research and do some things on your own, don’t be afraid to hire professionals to guide and support you as you build your portfolio. Local commercial real estate agents, mortgage brokers, commercial real estate attorneys, and accountants are experts in their field, ready to lend a hand where needed.
Still wondering if passive investment is right for you? Not sure where to start? Price Commercial Properties is here and ready to assist.
With a proven track record of closing transactions, Price Commercial will keep you at the edge of the Piedmont Triad’s future. Our team lives here. Experience and relationships coupled with our research provide our clients with investment opportunities no one else sees coming. We work to lower your risk and increase your mark on the commercial real estate landscape.
Why work with Price?
- Local Market Knowledge – We know the Piedmont Triad
- Financial Specialist – Work to mitigate risk and secure deals that make sense for you
- Strategy Expertise – We have a vast portfolio to share
Contact us today for more information!