It’s no secret that owning property is the secret to financial success for millions around the world. While owning a home is viewed as a life milestone by so many in the United States, investing in commercial real estate is viewed as financial security for generations to come. But where do you begin?
If you’ve ever seen a shopping center and thought, “Who does Target pay their rent to?,” they pay their rent for that location to a commercial real estate management company or building owner. There are numerous ways you can become a building owner and lease the space to retailers and other businesses, including purchasing property yourself, investing in a new development, investing in a real-estate investment trust (REIT), or investing with a commercial real estate firm. If you would like the most passive form of investing, partnering with a commercial real estate firm is your best bet.
The First National Realty Partners (FNRP) is a private equity firm that allows accredited investors to invest in commercial real estate. Because it is a private equity firm, it’s difficult to exactly say what FNRP’s stock price is, but investors can buy-in with a minimum of $50,000. From there, you’re connected with hundreds of commercial properties to invest in, attend a deal-launch webinar, submit your investments online, and then collect on your investment quarterly.
Is it really that easy? Yes, it is. Let’s continue to explore commercial real estate, the amount of input necessary to see returns, and the benefits of commercial real estate investing to see if it’s the right passive investment for you.
What Is Commercial Real Estate?
Commercial real estate is a property that has potential to generate profit through capital gains or rental income. We see commercial rental properties every day: office buildings, shopping centers, restaurants, and warehouses are all examples of commercial real estate.
Commercial REIT Versus Private Commercial Real Estate Investment Firms
FNRP is a private commercial real estate investment firm. Private equity commercial real estate is an asset class that allows accredited investors to invest with a professional team that purchases and manages commercial real estate assets. In short, they pitch you the properties, you invest, and they take care of the rest. The experts take care of the property considerations for investing in commercial real estate, and you either give your thumbs-up or thumbs-down. This is ideal for investors who don’t want to entangle themselves in finding tenants or managing the buildings themselves.
What is a commercial REIT? Commercial REITs are real estate investment trusts for business properties. Like investing with FNRP, investors purchase shares of these properties. The difference is that they are then traded publicly on the exchange market. You can buy “shares” the same way you would buy shares of Amazon or Disney using a brokerage account.
The downside of a commercial REIT is that there are several restrictions regarding tax treatments from the IRS. It is not easy to start a REIT, but if you invest in an existing one, that will be a much more passive investment.
The Benefits of Commercial Real Estate Investing
There are many ways you can invest in commercial real estate. While investing with FNRP has a higher upfront cost, it’s not your only option. Below, we’ll detail the benefits of commercial real estate investing and a few ways you can buy in:
It’s Possible to Have Lower Upfront Investment Costs
Circling back to REITs, starting one is a huge commitment, but investing in one is not. You can invest in as little as $1 and be recognized as a real estate investor in some REITs. But just like with buying any stock, the more you buy, the higher the rewards could be.
Tangible Assets
Investing in properties means you have something tangible and real. While other stocks are merely a piece of paper at the end of the day. When you invest in real estate (commercial or residential), you own either the entire property or a part of it.
Tax Benefits
By owning passive commercial real estate investments, you can be eligible for certain tax deductions and advantages. We recommend speaking with a tax advisor to know which deductions you qualify for, but here is a list of a few tax advantages:
- Mortgage interest deductions
- Depreciation
- Business cost deductions
Liquidity
For passive investments, your investment is more liquid than if you purchased the commercial real estate yourself. When you are the sole owner of a property, you are wholly responsible for it until you sell it, and how quickly that happens is dependent on the market. When you invest in a real estate investment trust, your investments typically liquidate after one year.
Closing Thoughts
There are multiple ways to invest in commercial real estate, but not all of them will result in passive income for you. Purchasing or developing properties yourself will require more than just financial input, but also building and tenant management, for example. To truly reap the benefits of commercial real estate investments as a passive income, we recommend investing in a REIT or private equity real estate investment group.
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