How Much Money Do I Need to Start Investing in Commercial Real Estate?
We frequently have conversations where people tell us, “I want to start investing in commercial real estate, but I’m not sure if I have the capital.”
It’s true that investing in commercial real estate typically requires more capital than residential real estate, because the properties are generally larger and more expensive.
These types of investments also tend to require more due diligence — like financial analysis, property inspections, and tenant evaluations — which can add to the investment costs.
That being said, investing in commercial real estate can offer the potential for much higher returns than residential investments. Because of the higher amount of capital and experience required, many individuals will choose to invest with a trusted sponsor who takes care of all back-end operations.
Choose Your Investment Vehicle
Keep in mind that different types of commercial real estate investments will have different investment minimums, as well as different benefits and drawbacks. These investment vehicles include:
Direct Ownership: This involves purchasing a commercial property outright or with partners and managing the property yourself or hiring a property management company.
Real Estate Investment Trusts: A REIT is a publicly traded company that owns and manages income-generating real estate assets. Investors can buy shares in the REIT to gain exposure to commercial real estate without owning the underlying properties.
Private Equity Funds: Private equity funds pool capital from multiple investors to acquire and manage commercial properties. These funds may have specific investment strategies, such as value-add or opportunistic investing. They may also have a minimum investment requirement.
Syndication: Real estate syndication involves pooling capital from multiple investors to acquire and manage a commercial property. A sponsor, or lead investor, typically manages the property on behalf of the syndicate.
Real Estate Crowdfunding: Crowdfunding platforms allow individual investors to invest in commercial real estate projects alongside other investors. These platforms typically have lower minimum investment requirements than other vehicles.
Joint Ventures: Joint ventures involve partnering with other investors or real estate firms to acquire and manage commercial properties. Each partner contributes capital and expertise to the venture.
As you’re choosing your investment vehicle, make sure to consider factors beyond just the investment minimum. The best vehicle for you will depend on a variety of factors, including your risk tolerance and your specific investment goals.
Investment Requirements for a Real Estate Syndication
Many investors are drawn to real estate syndication because it allows them to have equity in real estate without the added hassle of sourcing deals or managing the properties.
The amount of money required to invest in a real estate syndication will depend on the specific firm you invest with and the details of the specific deal. Some firms have minimum investment requirements of $50,000, while others have minimums as high as $1 million or more.
Although it depends on the specific syndicator and investment opportunity, many commercial real estate syndicators also require investors to be accredited.
Accredited investors are individuals with an annual income of at least $200,000 ($300,000 for joint income) for the past two years or a net worth of at least $1 million, excluding their primary residence, according to the Securities and Exchange Commission.
Want to find out if you’re accredited?
Before investing in any syndication, it’s helpful to consult with a financial advisor or attorney who can help you determine the appropriate strategy for your unique circumstances. You should also make sure to consider the fees and expenses associated with any investment, such as management fees and transaction costs.
At Excelsior Capital, our investment minimum is $50,000 per offering. If you’re interested in learning more about our investment opportunities, please fill out this form to get in touch.
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