Passive commercial real estate investing is one of the best wealth-building opportunities for investors today. Not only is real estate an asset, but you can also purchase a real estate property. Suppose you want to diversify your existing portfolio. In that case, it is wise to understand how to invest in commercial real estate passively.
First thing’s first
Before investing in commercial real estate, it is essential to understand how it works. CRE or commercial real estate refers to properties that are primarily used only for business purposes. Commercial real estate is owner occupied, which means the owner operates his business at the property’s location, or the property might be leased to tenants.
Commercial real estate classes
In many cities, commercial properties have their zoning codes. The code is meant to keep various types of properties clustered together. Here are the primary classifications of CRE that are characterized as Class A, B, and C.
These are the highest quality properties in the area and are not older than 10 to 15 years. They are occupied by tenants of high-credit with low vacancy rates. They are located in a suitable marketplace managed by a property manager along with an asset manager.
These are a step below Class A, which are older, about 20 years or less. They feature a reliable amenity package with both low and high-credit tenants.
They are an ideal place to invest in with a little higher vacancy rates than Class A properties.
Class C properties are older than 20 years and more. They lack amenities and are usually occupied by low-credit tenants with the highest vacancy rate. They are not located in the right area in the market with the lowest rental rates.
Commercial real estate properties to invest in
Multifamily properties are a viable option for investors. They can be either duplex or mid-rise, high-rise apartment buildings.
Office real estate investing requires more capital than any other type of CRE. They can offer investors some of the highest values due to the cost of turnover.
They are widely available in different sizes and uses. They include bulk warehouse, heavy manufacturing, light assembly, showrooms, storage units, and whatnot.
One or more retail anchors occupy retail centers. They include retail out-parcels, power centers, regional malls, and more.
This real estate property is meant to serve travelers, whether they are leisure or business. They include drop-in motels, larger resorts.