[Update August 2021 – CrowdStreet just funded its 500th real estate deal. Their largest individual deals are now in the following markets:

1. Miami, Florida
2. Park City, Utah
3. Atlanta, Georiga
4. Clemson, South Carolina
5. Denver, Colorado.

You can learn more by downloading their investor presentation. PDF download here.]

Diversifying your portfolio is an important step to take whether you’re an amateur investor or have decades of experience. And while you may think that diversifying the types of stocks, bonds or ETFs you buy will cut it, it may not be the most well-rounded plan for 2021 as many “alternative investments” have changed the landscape for everyday investors.

Take, for example, cryptocurrencies like Bitcoin and its rise — this is one of the prime examples of how alternative investments can be a lucrative, albeit risky, way to invest.

Surely, crypto has created a lot of wealth for many people in recent years, but many still find it too risky to add to their portfolio.

Luckily, there’s another option with commercial real estate investment via crowdsourcing platforms. Real estate investing, in general, is a lot more stable than crypto or other alt investments, and dozens of real estate investment marketplaces have emerged after Congress eased the securities regulations back in 2012 with the JOBS act. These platforms, like DiversyFund or GroundFloor, have made it extremely simple for novice real estate investors to take part.

One of the more popular real estate crowdfunding options is CrowdStreet, a platform that makes it simple to invest in commercial real estate projects across the country by connecting investors with “sponsors” (project developers) looking to fund a project.

CrowdSteet Platform Quick Facts:

If you’re looking for a platform to get started in real estate investing, CrowdStreet is certainly worth looking into. Here’s what this real estate investing platform can offer.

Sign up today at CrowdStreet!

What is CrowdStreet and Who is Behind It

Founded in 2013, CrowdStreet is one of the oldest and largest real estate crowdfunding platforms available to investors. It’s also one of the highest volume marketplaces — at least in terms of standalone crowdfunded real estate deals. Since its inception, CrowdStreet has hosted 367 commercial real estate offerings from sponsors looking for funding from small and large investors.

The number of real estate offerings on this platform isn’t the only reason for its popularity, either. The company’s co-founders, Darren Powderly and Tore Steen, are both industry veterans who have helped to establish CrowdStreet as a legitimate investment opportunity.

Prior to founding CrowdStreet, Powderly served as President of Compass Commercial, a full-service commercial real estate services company. Since that point, Powderly has transacted billions of dollars’ worth of commercial real estate investments and enterprise software contracts.

Steen, on the other hand, led the product, sales, marketing, and business development efforts for Janrain prior to launching CrowdStreet. Steen is widely recognized for helping guide Janrain from its phases to a recognized leader in the social identity space with a full user management platform.

Both Powderly and Steen are still at the helm of the massive platform, with Steen acting as Chief Executive Officer and Powderly as Vice President of Capital Markets.

And, the duo’s combined expertise has clearly paid off. CrowdStreet currently offers the largest number of investment offerings in this market at any given time — helping to set it apart from the competition.

That’s not the only thing setting CrowdStreet apart, either. What’s unique about CrowdStreet is that unlike other platforms, CrowdStreet acts as an intermediary, taking a small fee (between 0.50% and 2.75% depending on the project) while connecting sponsors — who they vet thoroughly via background checks and references — directly with investors.

This gives both the investors and sponsors the freedom to manage the relationship with each other. It also helps keep issues with communication or delayed funding to a minimum that you would generally find with SPVs or special purpose vehicles, which are frequently formed entities in commercial real estate deals.

With CrowdStreet, you can choose between individual properties or CrowdStreet’s funds, which act much like mutual funds with a diverse range of real estate projects. Those features aren’t standard on other platforms.

These less common features, coupled with a potential for a high rate of return, have helped build CrowdStreet into one of the mainstays in the real estate crowdfunding space.

Features and Benefits

One of the more obvious benefits of the CrowdStreet platform is that it allows investors to pick and choose what real estate crowdfunding projects they’d like to buy into. If a savvy investor feels capable of picking individual real estate projects and navigating the relationship with the sponsor, that’s an option on this platform.

Or, if the investor is a little more gun shy and would prefer a safer bet, the CrowdStreet fund may be a better option. Having both options to choose from — along with a highly-integrated investment management platform — makes this platform user-friendly for a wide range of investors.

It’s also friendly to sponsors or real estate investment and development groups who are looking to fund their projects. As of 2021, more than 250 large commercial real estate developers and operators had utilized CrowdStreet’s technology to raise the funds necessary for their projects. That is a substantially higher number of funded projects than many of the smaller platforms have hosted, lending credibility to the idea that both the investor and the project sponsors can benefit from CrowdStreet.

The platform also offers a wide range of investment opportunities for investors. In recent years, investors were able to choose from new construction rental projects, charter school projects, multifamily developments, and other real estate projects. Many of these projects are unavailable on other real estate crowdsourcing platforms — which further helps CrowdStreet to stand out against the competition. Whatever type of project you’re looking to invest in, CrowdStreet likely offers it.

More platform benefits include:

• A direct investment: Unlike other platforms, you deal directly with the sponsor if you opt to invest that way. This works in favor of the sponsor too, who is offered a more personal relationship with the investors using the platform.

• A very thorough vetting process: CrowdStreet has an incredibly thorough vetting process it uses to determine legitimate projects and sponsors. It’s worth noting that only ~5% of submitted projects get approved for the platform. But, the vetting process doesn’t stop there. The platform also vets the investors, too — so both the investor and the sponsor can rest assured that the deals and funding are legit.

• A culture of transparency: Investing in real estate crowdfunding deals can be intimidating, especially on this platform — where the minimum amount you’re investing is much higher than it would be on other platforms. CrowdStreet makes the process transparent, though, by offering documents and research on each deal.

• The option to buy into CrowdStreet’s fund: Another benefit is the option to buy into CrowdStreet’s fund, which, as mentioned, acts much like a mutual fund in that it uses your money to buy into a wide range of real estate projects. This option is great for investors who aren’t comfortable with the one-on-one interaction with sponsors — or for those who want to fund a wide range of projects without buying into each one individually.

• Tons of investment options: As one of the largest real estate crowdfunding platforms, CrowdStreet offers investors a massive range of commercial real estate projects to choose from. There are between five to 15 private equity investment opportunities on its marketplace, including both single-asset projects and funds.

• Easy access to project research: One very unique feature of CrowdStreet is that you get access to all of the information you need to make a decision on a project. For example, each investment opportunity on the website gives you a detailed video with information about the project. This feature gives you a very simple way to both vet the project and understand what the purpose and goal of the project is. You can watch these videos and understand where your money is going — and why — to ensure you’re doing your due diligence before forking over any cash. Plus, you also have the option to submit questions to the sponsor, which can help you further understand the goal of the project — and decide whether the investment makes sense for you.

• Access to a ton of resources: In addition to the easily accessible research, you’ll also get easy access to a ton of resources in the website’s research section. You can find instructional videos, articles, investing topics, and other resources in this section — along with access to the Quick Start Guide, which can help you navigate the platform.

Average Return to Investors

Another major perk of this platform is that it makes return information easily accessible to users. According to the website, CrowdStreet’s investors have made, on average, about 17.1% IRR as of June 2021, which is the annualized return metric that spreads cash flows and equity return over the course of the entire holding period.

Sign up today at CrowdStreet!

Furthermore, according to CrowdStreet’s data, investors, on average, receive a 1.39x equity multiple, which is the total cash distributions received from an investment, divided by the total equity invested.

Both of these numbers are based on a 2.3 year hold period, which is the amount of time from the date of the purchase to the date of the sale.

Those are just the current numbers, though. Thus far, CrowdStreet says it has successfully funded 485 deals on the site, of which 47 of have realized (sold).

As more deals work through their holding periods, the numbers will be updated to reflect the latest metrics, which are calculated to be net of fees.

Potential Drawbacks

While there are opportunities for a very healthy return on your investment of 18% or more with this platform, there are also potential drawbacks to using CrowdStreet to invest. These include:

• Limited to accredited investors: Right now, CrowdStreet is mainly limited to accredited investors. That means that anyone who cannot meet the accreditation standards set by the SEC is out of luck. There are other platform options to choose from, of course, but CrowdStreet isn’t a viable option for anyone who would struggle to meet accreditation standards. 

• A long investment term: The payoff for using CrowdStreet can be extremely high, but you’ll have to leave your money sitting in the investment for a period of years before you realize it. It takes about two-and-a-half years for most investments on this platform to mature, so if you can’t leave your funds tied up for that long, you may want to steer clear of this one.

• A high minimum investment: In general, the minimum investment on this platform is $25,000 for the marketplace but this goes up to $250,000 for a CrowdStreet Advisors account which is privately managed.

Costs

CrowdStreet charges a 1% management fee for investing in its Blended Portfolio. It also charges a 1.75% management fee on the REITs, along with a 1% financing fee.

There are also fees for managed investments, which carry a 2% to 2.75% fee on the assets that are under management for the first year. After the first 365 days, that management fee drops to 0.25%, but the costs are still significant given the amount you’re investing in this platform.

How are CrowdStreet’s Investments Sourced

Unlike many of the smaller real estate crowdfunding platforms, investors don’t typically seek out CrowdStreet. Rather, the company’s “Capital Markets” team has a presence in every region of the nation and is always looking for deals worthy of making it onto the platform.

When the team finds a potential deal worth featuring, the opportunity is taken to the investments team, which puts the sponsor and the deal through a rigorous review process. This helps them determine whether the deal is a prime fit for the CrowdStreet marketplace.

According to CrowdStreet, out of every 100 deals that makes it in front of the investor team, only five will make it onto the marketplace for investors to buy into. It’s evidence of how extremely thorough and, dare we say, picky, CrowdStreet is with the investment opportunities it promotes.

CrowdStreet puts each of its potential investment opportunities through the same objective review process, which includes:

• Background checks using industry-leading platforms. These background checks are run on the firm and the principals involved in the potential deal.

• A track record review. CrowdStreet wants to know the history of the companies behind the potential deals, so they look into any past deals to find successfully executed projects in the asset type they are looking to bring to the marketplace. This gives them an idea of whether the past projects have been actualized in a sufficient manner.

• Sponsor designation. Each sponsor is placed into a category based on background and experience.

These categories include emerging, seasoned, and tenured to help prospective investors understand the experience level and size of the sponsor or real estate firm they will be working with.

Below is a table breaking down the categories and what the sponsor requirements are for each.

Any red flags, including “bad actor” violations or any pending material litigation, are grounds for immediate rejection — which is part of why only 5 out of 100 projects make it onto the marketplace.

Who is CrowdStreet For

While other platforms allow non-accredited investors to buy into projects, CrowdStreet primarily caters to accredited investors. This limits the opportunities to those who can meet the laborious accreditation standards set by the SEC.

In order to become accredited, the SEC requires a net worth of more than $1 million — not including your residence — or an annual income of at least $200,000 per individual for at least two years. CrowdStreet makes it clear that their platform is geared toward investors who can meet these standards — which can block out the little guys from the equation.

Accreditation isn’t the only requirement, though. Right now, only U.S. citizens and green card holders can invest in CrowdStreet, so if you’re outside of the United States, you’re likely out of luck.

You also have to be in this investment for the long haul. You won’t see a quick return on your investment with this platform, so anyone interested in using CrowdStreet to invest needs to be ready to leave their money tied up in a project for a couple of years at minimum. This can be tough if you need the cash unexpectedly, so before you take a dive into this platform, make sure you’re OK with tying up your funds for a few years at least.

And, CrowdStreet can pay off, but it can also be risky. If you’re risk-averse, you may not want to invest in real estate crowdfunding on any platform. The potential payoff is large because there’s risk involved with funding other people’s projects. You don’t have much control of what happens after you part with your capital.

But, if you’re willing to take the risk and do your homework on the projects you’re considering funding, this platform can be a great way to get into real estate crowdfunding — especially if you value choice and options in the projects you invest in.

Is CrowdStreet Safe

As mentioned above, if you’re going to invest in real estate crowdfunding, you’re going to take a risk. It’s important to remember that a good chunk of change is going into these projects — generally about $25,000 at minimum — so be sure this figure works within your overall portfolio. If it takes up a sizable portion of the pie, this probably isn’t for you.

And, as with any investment, you’re at risk of losing money with this platform. That’s the reality of investing. There’s a payoff because there’s risk. If a project you funded fails to pan out as expected, you may not make as much as you expected.

That said, CrowdStreet is transparent with the results of the past investments from the marketplace. You’re able to see what the results of each project were right on the website. 

The recent performance results show that most of the individual investments tend to outperform the blended portfolio options, but individual projects are by far much riskier than blended portfolios. When investing in an individual project, you run the risk of losing some or all of your capital.

How CrowdStreet Differs from the Competition

CrowdStreet makes it easy for accredited investors to shop around for commercial real estate projects to add to their portfolio. They have one of the largest platforms in terms of active deals on the market. You can browse projects by region, view incredibly in depth videos, see key statistics such as estimated time lock requirements, targeted cash yields, IRR (Internal Rate of Return) estimates, etc.

It also requires a hefty investment. You’ll need at least $25,000 to invest in this platform, though minimum investments can be much higher depending on what you’re investing in. That can limit who uses this platform to invest. Many competing platforms have much lower thresholds, some as low as $500.

Final Thoughts

CrowdStreet is one of the big players for a reason. This platform offers everything from video briefs on projects to clear and transparent vetting and project information on who it works with, from the individual investors to the deal sponsors. All sides are on equal footing with this platform, which is a pretty unique feature for the industry.

But, while the platform offers everything, it doesn’t offer everything to everybody. Smaller investors who can’t meet accreditation standards may feel boxed out.

That said, if you can meet current accreditation standards, the risk may be well worth it. With an average of an 18% return on investments, this platform offers a very high rate of return especially when pitted against other traditional saving vehicles.

Sign up today at CrowdStreet!

Commercial real estate investing, or CREI for short, is the act of buying and selling properties that are used for commercial purposes. To be considered commercial the property must have 5 or more units. Here are the different types of commercial properties:

• Offices
• Retail
• Warehouses
• Industrial buildings
• Apartment buildings

You can invest in a CREI by either purchasing property directly, by taking out a loan to purchase a property with the intent to sell it later at a higher price, or by purchasing shares of an investment partnership. All these options take careful consideration before committing to them as they require capital.

We all like to consider our investments as a crucial part of building our financial future. However, the investment market can be rather difficult to navigate. To help you find your way through the process, we’ve put together this guide to some of the best commercial real estate investments out there. First, let’s take a look at why you might consider commercial real estate as an investment.

Why Invest in Commercial Real Estate?

While stocks and bonds might seem like they are better investments in terms of risk-reward, they’re not necessarily as profitable over time. That’s why investing in commercial real estate, either through property purchase or rental, is such an attractive option for investors looking for more stability and long-term earning potential.

One of the most important things you should remember when investing in commercial real estate is that not every property is right for you. There are many variables that go into a property’s suitability for an investor. If you can’t imagine any of your potential investments fitting into your portfolio, then that opportunity might not be right for you.

You can be an active or passive commercial real estate investor. Commercial real estate has the potential for higher income because you’ll typically have more tenants or a larger property with higher rent.

Something else to consider is the tax advantages that come along with commercial real estate. The following are just a few of the ways commercial real estate can benefit from the tax code:

• Operating loss. If your property is used in your business and you have a loss from operations, you may be able to carry that loss forward up to three years. This can apply to all commercial properties whether they would be considered office space, retail space, industrial space, or retail condominiums. Once an expense of $5,000 has been incurred during the year, a statement must be filed describing how this expense was related to income generated or otherwise connected with your business. The IRS considers the maintenance and use of your property as part of an operating loss if you choose to do so. However, if you were in a temporary bumpy situation or just not able to maintain the property properly, a general deduction can be taken for any expenses that exceed $1,000 for personal living space.

• Deduction for interest paid. Interest paid on a loan or mortgage can be deductible. You will have to attach documentation and amend your investment account to show that you are making payments instead of interest. You must be able to see through the current use of money to your loan or mortgage when they make this deduction as the IRS needs you to prove where the additional money not being used in mortgage principal comes from. 

• Deductions for allowable depreciation. Depreciation on commercial properties is a big factor that investors need to consider when buying an investment property as a means of making sure that they’re not overpaying for the property or building up a huge amount of debt that will take years to pay off with the rent they are bringing in. The IRS allows for a depreciation schedule based on the age of the property and the condition it is in. For example, for structures built before 1977, straight-line depreciation is allowed. This means that you can depreciate your building by deducting 1/27 of its assessed value over 27 years.

• Tax credits. There are several tax credits that can be applied to your tax return that pertain to commercial properties including a new markets tax credit and other local tax credits.

Now that you understand some of the reasons why someone might want to get into commercial real estate investing, let’s dive into how.

How to Invest in Commercial Real Estate

Check out 6 different ways to get into the commercial real estate market.

1. Commercial REITs

A commercial real estate investment trust (or REIT) is a company that owns, or finances income-producing commercial properties. They are similar to mutual funds in that they represent an investment for the general public, but unlike funds, they trade on an exchange like stocks do. They also have no limitations on who can purchase them which means anyone can participate in them.

A REIT can be a good investment for passive income investors or even investors that want to have more control over their investments. This is because many of them pay large dividends and distributions each year. They’re also relatively safe for the average investor and have little risk other than defaulting on the loan or properties they own. However, they do have some risks associated with them from their high leverage which can lead to huge losses if the market turns against them. Some people also like REITs because of their tax benefits and the ability to receive dividends in form of an exempt-interest distribution.

Like mutual funds, REITs are a collection of assets that are professionally managed by a team of experts. They are a favorite way for people to invest in real estate because of the ease of investment, and it removes the need for ownership of individual properties. This also makes them less liquid than individual properties or mutual funds because the investor must hold onto them until they can be sold again (just like a stock). REITs are relatively simple to understand and easy to purchase and sell.

Commercial REITs have many advantages over traditional stocks because they offer more substantial dividends and distributions. These are usually distributed quarterly or even monthly.

2. Commercial Property Crowdfunding

Crowdfunding has become a popular way to fund new and creative ideas, products, or services. Commercial real estate crowdfunding is especially exciting because it has emerged as a new and viable option for both investors and entrepreneurs eager to launch their business.

Commercial real estate crowdfunding is similar to traditional crowdfunding in that it enables people with ideas for property development or other commercial uses of properties to raise funds from others over the internet in order to finance the idea’s start-up costs (such as residential space start-up mortgages).

But unlike traditional crowdfunding, commercial real estate allows investors who have a lot of capital but not a lot of time to participate by leveraging their money into other people’s ongoing projects with minimum risk.

Unlike Kickstarter, for example, where the entrepreneur provides the finished product to the consumer within a specified time frame (i.e. if they don’t deliver on time, the consumer gets nothing), commercial real estate crowdfunding investors are simply buying into a particular project’s expenses as they are incurred. This lowers the risk involved for these investors because there will be no out-of-pocket expenses associated with their investment in typical commercial real estate projects.

Commercial real estate crowdfunding could also change how markets are done between property owners and potential buyers in terms of marketing and pricing. Property owners, for instance, may be able to use this new method of crowdfunding to create an advanced marketing campaign that will help them sell their properties faster and for a higher price. In the past, commercial real estate owners would have to spend thousands of dollars on advertising in order to find a buyer. These costs are not always necessary now thanks to the internet, where instead of one ad placed in one newspaper or magazine, property owners can place their ad on several different websites with thousands of potential buyers who can access those websites from the comfort of their own homes.

Property developers planning to use crowdfunded money may want to include a provision that allows them to buy back shares in the investment at different prices throughout the life of the project.

3. Become a Hard Money Lender

If you have a bit of money saved up, this might be an opportunity for you. A hard money loan is a short-term loan, typically one to two years, issued with less flexible terms than traditional loans. Hard money lenders make it their business to lend in situations where the borrower lacks access to traditional financing.

If you have the capital and the flexibility you could partner with someone knowledgeable in the commercial real estate space. Using the industry knowledge paired with your upfront capital, you could work up a contract that earns you interest on the loan and a percentage of the income from the commercial investment.

4. Owner-Occupied

This one is pretty straightforward and is for business owners or entrepreneurs. Move your small business into a commercial property and work to own it outright. If you use a loan for the property you have the option to sublease to help pay it down. You’ll likely need to put 20 – 30 percent down depending on the property, so this option does require a bit of capital.

The advantages of occupying a commercial property are numerous (see tax advantages above). Real estate fluctuates but it’s a relatively safe and not a volatile market. You can own the property for as long as you’re in business and then sell for a profit when the time is right.

5. Commercial Real Estate Mutual Funds

A commercial real estate mutual fund is a portfolio of investments in commercial real estate. It may consist of buildings, land and other property. The fund pools the collective assets of investors to purchase properties for long-term use or sale. Mutual funds are managed by professionals and offer participants an opportunity to spread their investment risk while maintaining control over their investments.

You can choose one of two types: closed or open end. A closed-end fund issues shares at a fixed price, which means that the price for an individual share remains constant over time. An open-end fund issues new shares at a variable price based on supply and demand while trying to maintain a constant share price over time. They can also be subclassified as public or private funds.

6. Buy an Office Building

In today’s digital world, the office is no longer just about where you go when you want to get some work done. Now, offices are long-term investments for many companies. The office space that a company uses is an excellent investment, and it might pay for itself many times over through rising rental rates. You might want to consider investing in a shared workspace like WeWork, or build your own version. WeWork designs and builds physical and virtual shared spaces or offices for individuals and companies.

If you’re interested in this area, there are many cities that have experienced high demand for office space in the past, like London and San Francisco. Once you find the perfect location for your investment, you can buy or build a property that will offer excellent returns during both good and bad economic times.

Bonus: Become an Accredited Investor

Many companies or projects may require you to be an accredited investor in order to invest. What’s an accredited investor? In order to become accredited your earned income must exceed $200,000 individually or $300,000 jointly annually for the past 2 years. You also must have a net worth of over $1,000,000 (individual or joint) not including your primary residence as an asset. The last thing you must have is a Series 7, 65 or 82 license. You can read more about those licenses here.

Some crowdfunding platforms like RealtyMogul and Fundrise have accredited investor-only deals. These exclusive investments often have more opportunity and income potential than if you were not accredited.

Steps to Evaluate Commercial Real Estate

Before making any investment, you should evaluate and estimate potential gains and losses based on a set of criteria. Follow these steps before committing to a commercial real estate deal.

Step 1: Observe and understand the current state of the property and area.

Observing and understanding the current state of the property is vital for proper evaluation because investors must know what property improvements are needed in order to make it more attractive. Some initial questions to ask yourself:

• What are some things to consider when observing and understanding commercial real estate property?
• How can you evaluate whether or not your building has good access? 
• How do you evaluate traffic flow within a building? 
• What impact does access have on overall commercial real estate investment performance? (ex. improve access to parking)
• What is your property’s physical appearance? What do you see when you look at the front of a building? How does the facade of a building affect its value?
• What type of zoning is in effect for what area? How will zoning affect current or future value?
• What are some common problems facing the building, and what would make it more successful in your eyes? For example, plumbing issues may be a problem. Some buildings may need cosmetic changes such as painting, landscaping, or upgrading pipes.
• What services are available in the area? Which are lacking?

Step 2: Evaluate the potential future state of the property.

What do you envision for the property if it were to be improved? According to commercial real estate appraisers, your vision must be realistic. Be careful not to overstate your case. You can, however, use a general vision and adjust it as you learn more about the property and its surrounding area.

Once you’ve evaluated the current state of the property, determine what would be ideal or possible improvements that would make this property more valuable. Think about how you see this type of commercial real estate investment performing in comparison to other investments you’ve made in the past. (Example: Can this be a retirement investment? Can you get a higher return than your local bank account? Would this be a good stable investment?)

Figure out the ideal tenant profile for the property. For instance, the building may require office activity during the day and have parking available after hours.

Future-focused questions will help you weed out the potential bad investments.

Step 3: Analyze demand, location, and access to capital.

Because most real estate investments are considered long-term, commercial real estate investors must think about factors such as demand, location and access to capital. Demand is the number of people who need what you are offering compared to how much supply is available. Does the property you are evaluating have enough demand for reasonable rental and/or investment income?

Location is another important factor. Where are the local offices? What kind of buildings and divisions are nearby? What type of commercial real estate would be appropriate in this location?

Access to capital is necessary to consider because it can help you select better tenants, buy larger buildings, or make other investments.

Step 4: Evaluate return on investment (ROI).

Once you evaluate your property’s potential future state, you need to execute a plan that will help you determine how well the property is performing financially. Estimate economic feasibility based on how much income you can generate and the expenses that you’ll incur. Look at things like operating expenses, debt service, and taxes. Quantifying financial performance is an important part of evaluating commercial real estate. You will need to create a financial statement that estimates cash flow (income minus expenses), profit or loss, working capital, investments and other financial information. This will provide future estimates for the project’s earnings and assets while helping you determine which investment strategy is best.

Step 5: Develop a commercial real estate business plan.

A business plan is helpful when you’re exploring real estate investment possibilities. As a commercial real estate investor, you should develop as much of a business plan as possible based on private and personal financial information. This is also helpful for investors who want to get financed and get the attention of lending institutions by setting out your goals and keeping them abreast of changes in your investment strategy. Read more about how to make a business plan.

Step 6: Determine economic feasibility, property value, and financial performance.

Once you have gone through all these steps, you are ready to review your results with other real estate appraisers in order to decide whether or not this property is worth investing in. Economic feasibility is the first evaluation criterion. How much income can be generated? What expenses will be incurred?

Commercial real estate property value is the second evaluation criterion. What do you see as the property’s potential value to a buyer?

Financial performance is the next evaluation criterion. How much income and profit are generated? What level of expenses? How much will be used to pay off debt? How much is left after you’ve invested your own money?

Once you have evaluated the property’s potential future state, you can decide if this investment will benefit your goals. This is another reason why it is important to develop a business plan before making any real estate investment decisions.

Is Commercial Real Estate Investing Right for You?

After you have invested in a commercial real estate project, it’s important to monitor the improvement of its performance on a monthly and annual basis. From there you can make adjustments to your strategy and continue to invest in other properties.

Commercial real estate investment strategies are like a marathon race: Marathon training allows you to be in top condition when the race begins and then it is up to you to work hard during the race.

Frequently Asked Questions

Q: How much money do you need to invest in commercial real estate?

A: Commercial real estate deals often involve large sums of investment capital but investments are never one-size-fits-all. How much money you need initially depends on a few different factors. One of the most important things you’ll want to consider is your current financial situation and the amount of risk you’re comfortable with taking on.

A general rule for assessing your financial stability is that if you’re not willing to risk at least 25% of your total assets, then it’s probably best to not enter into a commercial property deal. One of the most common types of financing used in commercial real estate deals is a hard money loan. A hard money loan is a type of loan that’s provided by private investors or institutions that are not as regulated as traditional lending institutions. The purpose of these loans is to help a borrower meet immediate funding needs after they’ve exhausted other sources.

If you’re planning on purchasing a commercial income property, such as an apartment complex, you’ll want to ensure that your down payment is enough to cover the costs for both closing costs and property maintenance.

Q: What are the best commercial real estate investments?

A: When you buy a property as an investment, you plan to get your money back through either ownership of the property or rent that you collect from tenants. The best commercial real estate investments are those that will offer the most stability and safety for your investment. Compared to investing in stocks and bonds, commercial real estate offers you the opportunity to earn a profit on your investment every year as long as there are no existing loans. Commercial real estate may not go up or down as much in value, but that doesn’t mean it can’t increase over time. This type of investment also allows for the possibility of keeping the property for years, which can be crucial during a recession or other economic downturns.

Q: How do commercial real estate investors make money?

A: Commercial real estate investors are the ones who actually invest in property for leasing to tenants. They’re looking for a return on their investment, either through an annual return or to sell the property if it has appreciated in value. The other kind of investor is a speculator: they buy properties hoping that they’ll be able to resell them for higher prices in the future, with little regard for its standing as an income-producing property.

When a commercial real estate investor buys a property, there’s not usually just one way they make money off it. Typically these investors will be trying to maximize revenue from renting out various parts of the building or flipping and selling it at some point down the line if it has gone up in value.

Are you eager to try something new but barriers to entry are getting in your way? It’s natural to question how you can invest without cash upfront or collateral. A common misconception with real estate investing is about how much money is needed to get started. Another thing you might not realize is that you can invest in real estate without even stepping foot on the property, let alone owning it.

Let’s start with some basic principles:

Determine your needs and wants. You need to figure out how much you want to invest and what you hope to gain from your investment.

Do some research. The best way to find out what your options are is to know where to look. As a new investor, you can do a quick search on Google for real estate investing. However, you may be better off doing more extensive research to find the best options for yourself.

Look for the right investment type. Real estate isn’t just residential. You can invest in commercial properties, land or REITs. We’ll get into more of that later.

Investing in real estate isn’t black and white. There are a number of ways you can invest whether it be owning property outright or by owning shares of real estate investment trusts. Let’s get into the ways you can invest in real estate.

Primary Residence

Most states offer a grant incentive for people who have never owned a home before. These grants work by reducing the amount of money you need to spend on your initial down payment. For example, a first-time home buyer in the state of New Jersey could receive up to $6,000 toward the down payment on their house. This means that if you are looking to buy a $200,000 house and are required to put $40,000 down, you’d need $34,000 instead. That makes the monthly payments more manageable for first-time home buyers.

Seek out the programs available in your state. There are other incentives and loans available. Another example is MSHDA, which requires just 1% down of the purchase price, up to $7,500. The good news is, once you pay off the mortgage you can keep your property and turn it into a rental to generate passive income.

Real Estate Crowdfunding

Real estate crowdfunding is a relatively new concept that is quickly taking the world by storm. It’s about giving more people access to real estate investment opportunities and breaking down those barriers that we mentioned before. Real estate crowdfunding is a way for investors of all types to take advantage of pools of real estate deals. Instead of having to jump through hoops, answer lots of questions, and endure long waits just so you can invest in one or two deals, with crowdfunding you get to make as many investments as you would like. The result is that more people are able to participate in lucrative real estate opportunities.

A crowdfunding platform like RealtyMogul is a great way to make investments in real estate, but it does require some money. The general rule is that you need $7,500 to start investing (but there are many exceptions).

With RealtyMogul crowdfunding, it’s not the amount of money you invest in your project that determines how successful the project will be — it’s the number of people who invest in your campaign. If only one person funds your project, you might never receive your investment back. If, on the other hand, 10 individuals fund you, you will probably get your money back.

Real Estate Investment Trusts (REITs)

A Real Estate Investment Trust (REIT) is a type of company in which shares are publicly traded. The company invests in properties, such as office buildings, shopping malls, and hotels. These properties are typically rented out for a period of time to an operating partner with expertise in the industry – like office space to a law firm or a hotel room to guests.

As a shareholder, the investors benefit when the business generates gains from its property assets and recognizes that income through dividends. When you invest in REITs, you do not have to worry about finding and maintaining the properties, since the company takes this on as its job. The company does not collect rent from tenants but instead collects a share of the income generated by the property it owns. When a REIT has an agreement with the individual investors, they oversee and manage their portfolio of investments for which they are rewarded with dividends for their contributions to that management project.

REITs are a great investment if you want to diversify your portfolio with income-producing assets without having any risk involved directly in owning properties or collecting rents and managing them yourself.

Buy, Remodel, Rent, Refinance, Repeat

The BRRR strategy is pretty straightforward and works if you’re trying to stretch your cash flow. There is one caveat to this strategy: you have to buy low. Purchase the property as your primary residence when you find a deal. Take your time remodeling if you need to. Once it’s ready, rent it out and refinance as often as you can and when it makes sense to lower your payments. Make sure your tenant is covering the mortgage, insurance, utilities and a little extra on top so you can save for further investments.

Once you pay off your first mortgage you can repeat this process with more and more rental properties until you’re satisfied with your portfolio.

Microloans

If you have ever wanted to buy a property and may be having trouble getting that loan from a bank, or if you want to make a real estate investment but can’t come up with all of the money upfront, then here’s some good news: microloans for real estate investing may be the solution. But before we get into what they are and how they work, here’s a quick definition first.

A microloan is a small loan (under $10,000) that is specifically geared toward small business owners who traditionally have not been able to access traditional loans due to their lack of assets such as collateral or personal credit history. The reason why this process works so well is because the lender offers money to individuals who have a proven business idea, as long as they can demonstrate that they are capable of providing regular monthly repayments. So even if you don’t have a lot to put down, you can still get a loan for real estate investing if you have sufficient income coming in. However, there is one small catch: microloans are really only available to those who qualify for them; although not the severe requirements of traditional lenders, some requirements must be met before applying.

Microloans don’t require any collateral or down payment because the lender takes your ability to repay the loan into account and not your credit history. You could take this microloan and put it into your real estate idea – maybe a BnB or fixer-upper.

Find an Investment Partner

If you’re looking to buy your first commercial property or invest in real estate but don’t have the capital, then a partnership with a private lender or funding partner might be an ideal solution for you. Partnerships are also excellent ways of diversifying risk and lowering your overall investment costs as well. As long as both parties are willing to commit to the agreement, there is no limit as to what could be accomplished.

To get started, know how and where to find a private lender or funding partner. This can be accomplished by calling the bank that you are setting up your account with (or a real estate agent), asking around or doing some online research. Alternatively, if you know someone personally who is willing to partner on an investment with you, this is a great way to start as well. All of the information needed for setting up your account with a private lender or funding partner should be available on their website or on the internet in general.

After finding your private lender or funding partner, contact them for more information about their rates as well as the terms of their investment program.

Multi-Family Units aka “House Hacking”

House hacking refers to a method of buying real estate that many people are taking advantage of in order to buy their first rental property. It’s not unlike the process you may use when you’re hunting for your first job, only instead of looking online for a company, house hackers start with searching for multi-unit homes, or duplexes.

When you own a multi-unit home you can charge your tenants what you’d like. One way is to take your mortgage payment and divide it by the number of units in your property minus one (the one you’ll live in). In order to pull this off with little or no money down, it’ll have to be your primary residence. Once you pay off the mortgage you can list it as an investment property and sit back and collect passive income.

HELOC

This one works if you already own property. A HELOC (Home Equity Line of Credit) is a loan issued by a bank to an individual or family to provide funds to improve or maintain their home. It can be taken out in the form of a mortgage, HELOC, or other commercial loans.

This line of credit requires an application from either the mortgage holder, head-of-household, or as a co-applicant with any number of people. It provides borrowing about $200,000 on any single property you own back at better interest rates than those offered on credit cards. And unlike credit cards which charge interest rates as high as 30%, your APR with this type of loan generally stays below 3%.

A HELOC is much like a credit card in your ability to spend money, it is one of the most accessible forms of borrowing available to homeowners. What draws people to this type of loan is that they are able to spend all the money on whatever they want, such as a REIT or investment property, and the interest rates are relatively low compared to other types of loans.

Best Online Real Estate Investing Platforms

There are a number of different real estate investing platforms that you can work with to get started. We’ve gone through quite a few of them and have found a handful of favorites that we’d like to share with you below.

Roofstock

Roofstock is an online real estate marketplace that lets you fund a purchase and become an owner of a rental property without any money down or upfront costs. This is an investment opportunity designed to help first-time real estate investors with no previous experience or cash to get started.

You can earn 8% annualized performance, potential tax savings, and a portfolio of properties in your account. This is a unique property investment option that will work well for people who are new to the game but are still eager to start investing in real estate.

Fundrise

Fundrise allows investors to invest their money in real estate with no minimum investment and no risk.

Known as crowdfunding, this is an alternative financial system where the crowd invests their money from many people to achieve good returns. If you have always been fascinated by this type of investing but felt that it was too risky or too difficult to get started, then Fundrise might be the solution for you! The Fundrise platform uses blockchain technology and smart contracts to allow investors to put their money into real estate without requiring a financial history or any institutional credit. They also allow individual investors and accredited investors to invest in real estate with no minimum investment, trust score management, and no due diligence.

RealtyMogul

RealtyMogul is a real estate crowdfunding platform that allows users to invest in real estate projects without having to go through lengthy processes. This platform makes it possible for people with small amounts of money to access lucrative investment opportunities by allowing them to pool their money together and get better returns. They offer investments in the range of $2,000 to $50,000 and are open to both accredited investors and non-accredited investors. This platform has been in operation since 2013 and has successfully distributed $100 million in returns.

Types of Real Estate

Before you start investing, determine what type of real estate you want to put stake in.

Land

Land real estate is normally vacant land that you can buy directly from the owner. As leverage for securing a home mortgage, most banks will require that you have a certain amount of money saved up before they’ll give you a loan. If there isn’t enough money in your savings account to cover your down payment and closing costs for the land real estate, then it’s tough to secure a loan. There are many ways to get the funds legally to build on vacant land (the best way is through an FHA home mortgage).

Commercial 

Commercial property is usually owned by a landlord who manages the building for the tenant. It can be an office space or a store and can include multiple tenants under one roof (as is the case with a retail center). The rent usually goes to the landlord, but that doesn’t mean you’re not responsible for your portion of the rent as well. Plus, in the case of commercial properties, you also have to pay taxes on the income (such as sales tax, property tax, and business tax). You may be able to rent a commercial property and run a business out of it or sub-lease it.

Residential

Residential property is exactly what you think it is: the house you live in. Many people have an HOA fee, but not all. And taxes are often cheaper than commercial real estate taxes. Residential properties vary from condos to townhomes or single-family homes and even mobile homes.

Passive vs Active Real Estate Investing

Active real estate investing is where you buy properties, improve them through your own efforts, and then gain income from the property. This includes renovating, renting out units, collecting rent payments from tenants or buyers, or even leasing the property out on Airbnb for extra revenue.

Passive real estate investing only involves buying a rental home in a specific location with investment in mind but not personal ownership. This means you don’t do any maintenance or upkeep on the property yourself. Instead, you can hire a property manager who will go take care of that for you.

The ideal investment strategy often depends on your personal situation and potential for risk tolerance. For many people, buying a passive rental home without doing any work at all might be an unrealistic goal. It’s just easier and more convenient to buy an active rental property that requires renovations or attention from time to time and also includes direct marketing efforts.

The two strategies are often used by the same person. In rare cases, an investor will have one or both properties at different stages – an active property that needs renovation or a passive property that’s a rental without any maintenance and upkeep. Crowdfunding is a type of passive real estate investing.

More Tips for Investing in Real Estate

When investing in real estate, the most important thing is to know your market and know what you’re doing. This sounds complicated but it isn’t. If you just want some extra cash flow then buying a house from someone that is thinking about selling or cash-flowing properties could work for you. Here are some more tips and scenarios you should be aware of:

Cash in on the Hot Spot – Invest in the area that you want to live in. If it is a metropolis or a city, then you can make some money investing in the property there. It’s possible to make money on rental properties no matter where you are.

Cash Flowing Properties – Buying good cash flowing properties can lead to huge profits. Choose the right area and don’t be afraid to put up money for remodeling or large down payments. Go out and spend on quality items instead of cheap items but, avoid purchasing high-end expensive goods that could lead you to bankruptcy and foreclosure later down the line.

Get a Mortgage – A fixed-rate mortgage means that the interest rate remains the same for the entire length of your loan. Most fixed-rate loans are for 10 or 15 years, but there are also some for as long as 30 years. The lower the interest rate, the more you save over time. However, a lower interest rate also means that your monthly payments will be higher than with a higher rate because they have to account for all of those additional savings throughout your loan.

A variable-rate mortgage means that your interest rates and monthly payments can change periodically throughout your loan period. These are usually set to coincide with current interest rates and, as a general rule, will rise and fall when interest rates naturally increase or decrease. The fluctuation in the rate of this loan will allow you to save money over time because your interest rate will be below the nationwide average. There is also no guarantee that interest rates won’t go up in the future which could put you at a higher rate and cause you to have higher monthly payments throughout your loan.

Ready to Invest?

We’ve covered a lot in this article and we hope it helps generate ideas and figure out what the best approach is for your investment style. There is one fundamental approach you should take with any investment: do your research. With little to no money down, you can still break down those barriers and enter the market you’ve always wanted.

Frequently Asked Questions

Q: How do beginners invest in real estate?

A: Beginners can start in one of the hottest real estate markets today by purchasing commercial real estate. Commercial real estate is usually owned by a company and can be leased to tenants. These properties can grow quickly if the demand of a specific market increases. As a beginner, you could also consider crowdfunding.

Q: What are different types of real estate investments?

A: Real estate investments can be as small or large as you want them to be. You can choose to buy many properties to build your portfolio and begin earning rental income or you could purchase one or two residential properties to get started in investing property. You should always research the type of property you are interested in buying before deciding which type you want to invest in.

Q: Are places that allow the purchase of homes with bad credit safe?

A: Yes, places that allow the purchase of homes with bad credit are safe. Many investors have bought homes with no money down and even paid for closing costs, which saved them thousands of dollars. You don’t want to buy anything you cannot afford or cannot afford to lose because if you do, you won’t make any more money than if you had simply financed it.