How to Invest in Commercial Real Estate With Little Money

There’s a common misconception that investing in commercial real estate requires enormous capital. It doesn’t.  While it’s certainly true that commercial properties do tend to be pricier than residential ones, that doesn’t mean they require an enormous pool of wealth. 

Believe it or not, you can gain experience and begin building a portfolio in commercial real estate with only a small investment (and without having to tap the bank for a massive loan). 

Invest Without Purchasing Property

As noted by personal finance and wealth expert Jeff Rose, commercial real estate investment and ownership are not one and the same. If you want to enjoy some of the benefits of real estate investment without the headaches associated with running your own property, there are multiple options available to you. These include:

  • Exchange-Traded Funds. Similar to index and mutual funds, an ETF is a diversified collection of stocks and bonds issued by an investment trust and tied up in the commercial property. While it’s not entirely risk-free, it’s a low-cost alternative to other forms of real estate investment.
  •  Direct Investment. Alternatively, you might consider putting your money directly into either a construction company, a real estate investment trust, or any other business involved in commercial real estate.  While this a less diverse option than an ETF or a mutual fund, it also has the potential for a significant return if the business you’ve invested in performs well. 
  • Consider Crowdfunding. Websites like RealtyMogul.com, Fundrise.com, CrowdStreet and Ground Floor allow you to join forces with a group of other sponsors and investors to pursue a multitude of investment options. These may include common equity, debt, and preferred equity. 

Consider a Franchise

Franchises are an incredibly common sight in almost every major town and city. There’s a reason for that, and it’s not just because people are suckers for familiarity. Putting money towards opening a franchise is a lower-cost alternative to building your own business from the ground-up, whether your field is property rentals or something else. 

Not only that, you gain the marketing power associated with that brand, as well as support from what is presumably a global (or at least state-wide) enterprise. In addition to being a lower-cost alternative to owning your own commercial property, a franchise investment is also significantly lower risk. There are several reasons for that.

  • Reduced Liability. If someone is injured in a property you directly own, you are potentially liable for that injury. If, however, they’re injured within the walls of a franchise, you have the legal backing of the corporation. That’s assuming, of course, you are not obviously at fault. 
  • Mentorship Resources. Particularly if you’re unfamiliar with commercial real estate, buying into a franchise can put you in touch with a network of significantly more experienced investors, whom you can tap for knowledge to help pursue success in your own career. 
  • Ease of Financing. When investing in a property by yourself, it can be difficult to obtain a loan, particularly if you’re new to the field of real estate investment. However, banks are much more willing to lend to debtors who are backed by an established franchise. 
  • Opportunity for Expansion. Many of the most successful franchise owners operate multiple locations. They may not even be directly involved in the day-to-day operations of their business. Instead, they work on a larger scale with the support of the leadership they’ve hired at each location. 

Attend An Auction (Or Several)

When a bank acquires a property and is unable to sell it for a certain period of time, it eventually puts that property up for auction in order to recoup its loss. This is an incredible opportunity from an investment perspective. At a real estate auction, you can potentially acquire a property at significantly below market value, and in a competitive market at that. 

Ignore the common myth that a property up for auction is in some way damaged or inferior to one that’s purchased through more traditional means. There are many reasons why a property might be up for auction.  While there is an element of risk here, a bit of research goes a very long way.

Don’t just limit yourself to purchasing real estate, either. Say, for example, you’ve purchased a grocery store at an auction. You can attend other auctions to buy necessary equipment such as freezers, point of sale systems, shelving, and so on.

Foreclosures and Real Estate Notes are Also Options

Last but certainly not least, any house flipper will tell you that while risky, foreclosures and real estate notes also have the potential for enormous returns. This is true of commercial property as much as residential. Provided you’re willing to put forward the money to repair any damages and carry out necessary renovations, a foreclosed property is an excellent way to make an inroad into commercial real estate.

Just make sure you do your due diligence here. Some foreclosed properties may be extremely damaged, subject to liens, or in areas where there simply isn’t any business potential. A thorough understanding of the market will be a significant boon here, as will a willingness to spend the necessary hours looking into a property’s history. 

If you can’t find anything online and the seller seems flighty when you ask for details, consider asking around the neighborhood. When foreclosures happen, people talk. All you need to do is listen. 

Savviness Is Your Most Powerful Tool

Knowledge is something that can be acquired with experience. Capital is something that takes time to cultivate. By understanding this, you can start making savvier decisions, and turn even a small investment in commercial property into something greater.