Investing in Commercial Real Estate with $150,000

Owning office, retail, industrial or hotel properties while a goal of many, is often thought to be the privilege of the super-rich.       True, the price tags on these properties……often in the tens of millions of dollars and more……are lot higher than those on most residential  properties.     At the same time, if you want to include commercial real estate in your investment portfolio, there are still excellent opportunities for the small to medium-sized investor.     In this article I will address four ways to invest in commercial real estate with $150,000.

 

1.        Buy your own commercial condominium.    If you own a small business that requires office or industrial space for its operation, there is a good chance you are eligible for an Small Business Administration (SBA) or other small business loan programs.    Such loans permit the borrower to finance 85- 90% of the cost of acquiring real estate.      This means with means that your $150,000 down-payment could allow you to purchase $1-Million to $1.5-Million office condo for your business at interest rates still quite low in historical context.

 

2.        Exchange into a high-quality, income producing TIC.     Many investors in residential investment properties have substantial amounts of equity and tax-liability stored-up.    The 1031 Exchange you can take your $150,000 equity in your residential rental and exchange into a Tenant-in-Common (TIC) interest in a shopping center, apartment community or office building.    Since high-quality TIC’s are professionally managed, you can also say good-bye to hands-on property management, while retaining a say in major decisions regarding the property.

 

3.        Purchase land.      As Will Rogers said, "Buy land. They're not making any more."    There is wisdom in this statement in that whenever you own something in finite supply, it tends to become more valuable, over time, as demand increases.    However, undeveloped land (unless leased for crop or livestock) tends not to produce income…..and real estate taxes and other holding costs must be paid.      One of the attractive aspects of buying a piece of commercial land is that it may qualify for a Self-Directed IRA.    This means that you can use retirement funds to invest in the property with the intention of selling it down the road when you need the cash.

 

4.        Invest in a REIT.      A Real Estate Investment Trust (REIT) is a vehicle for investing in real property, providing certain tax advantages when the appropriate federal and state statutes are followed.      You can find REITs that invest in most any form of income-producing real estate from multi-unit residential (including retirement housing) to retail centers to industrial properties to hotels.     Most REITs are publicly-traded with low-minimum investment requirements.      Your financial advisor can help you invest in a REIT using either retirement or non-retirement funds.

 

Regardless of the investment vehicle you choose, it is important to be very clear about your goals.   People generally choose real estate because of its attributes of enduring value, tax-deferability, inflation hedge and portfolio diversification.    Be prudent in your use of debt.    Financial leverage is a two-edged sword.    Lastly, use the expertise that is available to you through skilled professionals.       A real estate investment advisor, a property attorney, a tax accountant and a financial planner should be included in your team.