Imagine returning home after a week-long honeymoon and then going straight to your mailbox. The mailbox is jammed with the usual stuff; bills, flyers, and boxes full of catalog. Then you see something interesting- a cheque! You’ve just earned money while still enjoying your honeymoon! Now, that’s what we call passive income. It’s the money that you make without spending any of your time working for it. Everyone’s dream is to get there in the future.
A 5-year-study conducted by Tom Corley about self-made billionaires showed that 65% had three income streams, 45% had four streams of income, while 29% had five or more streams of income. Unfortunately, many people have made themselves too busy with their careers to consider setting up a stable and long-term passive income.
Why Choose Commercial Real Estate Investing?
There are many passive income choices, but none comes close to beating commercial real estate investing. Commercial properties range from multifamily apartments, industrial warehouses, and medical office spaces. Commercial real estate investing is a good option since:
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- Its necessity in the global economy makes it a long term investment
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- Leases ensure long term and continuous flow of income
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- Lease agreements have growth and certainty of a fixed annual increase, thus increased income
This post will showcase how you can earn passive income through commercial real estate investing:
1. Public Real Estate Investment Trust (REIT) Shares
A publicly-traded company that owns and operates income-producing real estate is referred to as A Real Estate Investment Trust (REIT). They are very similar to private CRE funds, but investors share or contribute money to get monetary benefits in return.
Unlike the private CRE funds, REITS are publicly traded investment takeaways that can be found on the stock market that allows you to buy and sell online quickly. Your investment is bound to spread to other real estate property portfolios with REITs, thus almost assuring almost a 90% return to their investors.
The only downside to REITs is that investors are not given the freedom to choose where their investments go into. Thus, due to lack of transparency, REITs will generally provide lower returns on average than other passive real estate opportunities.
2. Private CRE Funds
These are mutual funds that allow an individual to invest in the real estate sector while remaining passive. These funds are not regulated as much as the publicly-traded REITs. However, since the traded assets are done privately, their dividends and funds are not easily affected by the stock market fluctuations.
3. Proportionate Ownership Investment
Individuals pool their capital together to purchase real estate, which a third party then manages. This method is most preferred since it offers the flexibility of allocation size and getting management expertise.
The only downside to this is the high fees charged and misalignment of incentives between the investor and manager. However, this avenue continues to become increasingly popular with each passing year due to the high returns offered.
Commercial real estate gives an excellent investment opportunity for those looking for passive income without actively participating in day-to-day activities. If you are ready to acquire passive income with long-term investments, this is the way to go.
About the Author
Veronica Baxter is a writer, blogger, and legal assistant operating out of the greater Philadelphia area.
