Creating passive retirement income: How to get started in commercial real estate investing

Commercial Real Estate (CRE)

Commercial real estate (CRE) is any property that can be used foremost for business purposes. Any property that is created solely for the purposes of living is called residential real estate (RRE). Commercial real estate investing has many benefits that distinguish it from other investment options such as stocks and bonds. Your main requirement is that you should be committed to keeping the real estate holding invested for the long term. The commercial real estate market differs from the stock market, but similar investment risks and strategies still apply. 

CRE investment is for the experienced, but NAI First Valley is here to help you every step of the way. Every investment carries risk, including real estate investments. CRE investment differs from RRE investment in its ability to insulate the landlord from risk exposure, placing the burden with the tenant for the majority of ongoing property costs.

Identifying current trends is key to successful commercial real estate investing. Current trends making it favorable include the following:

  • Today’s low-interest-rate environment. You can lock in an interest rate on a commercial mortgage loan and avoid interest rate risk for five to 10 years, or longer. Low risk and long-term rewards.
  • A stable stock market.
  • The effects of the past years’ stimulus payments bolstered the US economy. The federal packages of Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) at great terms sustained many vital businesses through the pandemic.
  • Investment infrastructure tools provide simplified and widespread access to data.
  • Change of demands in the market for property usage creates new opportunities for investment.

What is passive income?

Passive income in commercial real estate (CRE) is investment in the type of property where you can collect income without having to manage the property. Essentially, you do most of the work upfront by choosing the right kind of property and negotiating mutually beneficial leases with the right tenants.

This is the key difference between active and passive income. Earning your active income requires an investment of your time. You must keep working to earn your income. You quit and you no longer have income.

On the other hand, passive income means that once you have initially committed some of your time, effort and capital, you can look forward to a sustainable income source allowing you to passively sit back and enjoy your earned financial rewards!

Forms of passive real estate income

The basic idea of passive real estate income is to reduce the risk of investment, and there are several popular methods to do so:

  • Construction and development (ex: pooling your funds with others by investing in a group of developers and contractors building properties from single-family residences to commercial office parks.
  • Crowdfunding digital platforms such as Fundrise and Crowdstreet. These provide individual investors access to CRE investment properties, educational resources and professional networks to connect with other CRE professionals. Benefits include ability to invest with small amounts, generated cash flow and property appreciation long-term.
  • Exchange-traded funds (ETFs). These are bonds or stocks grouped together into a single fund by investment trusts in different categories such as office, retail or hospitality.
  • Owner financing/debt in which the owner of the property holds the buyer’s loan. The buyer repays the seller by making monthly payments over a set period of time with an agreed-upon interest rate and terms. Basically, you become a lender for someone else’s project.
  • Transactional funding. This is short-term financing of CRE projects in between the closings.
  • Hard money lending (real estate transactions secured by real property, with the lender being an individual or a company and not a bank). Hard money lenders generally can charge high interest rates along with upfront fees, but are dependent on vetting good borrowers and flipping projects successfully and quickly.
  • Mutual funds. Look for funds with consistent track records and run by seasoned CRE economists.
  • Real estate investment trust (REIT). Publicly-traded REITs provide the ability to invest in multiple asset classes, transparency, long-term data and lower fees.
  • Real estate mortgage notes (purchasing debts at a lower rate, but requires due diligence as you may end up in possession of the property).
  • Syndication (pooling with other limited partners to acquire, develop, construct and improve different CRE properties).

Commercial real estate is a popular way to boost your income and is excellent for creating passive income for retirement. Contact NAI 1st Valley to talk to our principals and brokers and find the right commercial real estate investment tool for you!

How to get started in Commercial Real Estate investing

Commercial real estate (CRE) investment is for the experienced. Every investment carries risk, including real estate investments. CRE investment differs from residential real estate investment in its ability to insulate the landlord from risk exposure, placing the burden with the tenant for the majority of ongoing property costs. Many investors prefer to enlist our real estate expertise to handle the day-to-day management of their investment properties, making these investments truly passive in that the investor’s prime responsibility lies in collecting their payments.

Forms of investment in Commercial Real Estate

CRE properties may be owner-occupied, although they are most often leased to tenants. They can range in purpose from storage lots to small neighborhood coffee shops to planned iconic city skylines of multiple buildings of coordinated design.

There are five main categories of CRE properties and they run the gamut of possibilities for investments:

  • Multi-family
    • duplex, triplex, quadplex townhomes
    • garden apartments and live/work lofts
    • mid-rise apartments to high-rise large apartment buildings
    • student housing
    • senior/assisted living
    • daycare centers
  • Office/corporate parks
  • Industrial
  • Rental storage spaces and parking lots
  • Retail
  • Hospitality (hotels, motels, restaurants, entertainment and bar complexes)

CRE investors receive passive income and appreciation from their property as well as tax benefits and stronger buying/borrowing power by leveraging their borrowed capital to invest in other property investments.

Passive income through CRE investing means you let your capital work for you. Also, it is a reliable form of income, providing financial freedom, cash flow and risk diversification. Passive income can be attained through CRE investing through the following methods:

  • Pooling money with other investors
  • Property with more tenants
  • Multi operator/multi-project investment portfolio
  • Forced appreciation
  • Tangible asset
  • Tax advantages (interest deductions, building depreciation, low capital gains tax, 1031 exchange of tax-free proceeds into another piece of real estate)

For investors seeking a more diversified, balanced and scalable approach to real estate investing, curating a portfolio of passive commercial real estate investments is the path to take. Compared to residential investments, a passive investor in commercial real estate can typically expect:

  1. Control over choice of tenants
    Tenants tend to be businesses and corporations. There are no rules regarding fair housing with such entities. As a commercial real estate owner, you can choose to whom you lease your property. You can qualify tenants by asking for anything you name and deny potential tenants if you don’t like the information you receive from them.
  1. Fewer expense obligations

All of the following expenses are typically the owner’s responsibility in residential real estate leases: 

  • Maintenance of common areas
  • Property taxes
  • Building insurance
  • Utilities
  • Building maintenance

The opposite holds true for commercial tenants. Leases for commercial tenants are typically written so that the responsibility for the above expenses lies with the commercial tenant. This is one of the primary reasons that CRE is beneficial for the owner.

Why is NAI 1st Valley the best company to work with to create passive retirement income?

Commercial real estate (CRE) investment is for the experienced. Every investment carries risk, including real estate investments. However, no one knows more about commercial real estate in Las Cruces, White Sands and southern New Mexico than NAI 1st Valley Realty

NAI 1st Valley’s founder, principals, and brokers have over 100 years combined experience in CRE, including office, retail, industrial, investment, multi-family and property management. Our associate brokers and property managers specialize in combining the people and resources that ensure our clients maximize the potential of their properties.

We also understand the potential pitfalls of initially attractive properties and know how to vet them following all principles of due diligence. We are deeply committed to bettering the economics of southern New Mexico, and thoroughly understand the dynamics of its markets. We represent commercial clients from national and worldwide financial institutions and innovative energy companies to medical centers, churches, fast food restaurants, communications companies, you name it!

At NAI 1st Valley, we strive towards and take pride in creating prosperity for you, the commercial real estate investor, and for nurturing the burgeoning and established communities of the greater Las Cruces area, creating thriving prosperous communities. 1st Valley provides property management services so that there is not much for you to do as the owner other than to collect the rent. 

We monitor the property and the lease contracts to ensure that all is well so that you can sit back, relax, and let passive retirement income flow your way! Contact our NAI 1st Valley real estate brokers and advisors to find the right commercial real estate property for you to create passive retirement income!