Taking the plunge into real estate investment can appear daunting. However, as you take the time to understand the various facets of these investment types, it is less confusing. There are two types of investment opportunities available to you – active and passive. Here are some ways to build commercial real estate opportunities into your portfolio.

Passive Investment

Passive investments are typically structured similar to stock market investments where you purchase a share of ownership in real estate. As with any investment, diversifying your portfolio will minimize risk. The most common investment options include Real Estate Investment Trusts, private equity funds, and online investment opportunities.

Active Investment

Active commercial real estate investments involve your active participation in the ownership and operation of the building. Due to the financial commitment, diversification can be more difficult.

Residential Rental

Multi-family housing and apartment buildings fall under the commercial investment umbrella. While the units are residential, the ownership and management of the building are commercial. You will receive income from tenants in the form of rent payments. You are responsible for the maintenance and upkeep of the exterior of the buildings and the interior of the units. If a tenant does not renew their annual lease, you must update and clean the apartment for the next tenant. Many owners hire management companies to handle the day-to-day operations of the facility.

Commercial Lease

Commercial real estate leasing comes in the form of office parks, malls, or freestanding retail units. Unlike shorter-term residential rentals, commercial leases are 4-5 years. If a tenant does not renew their lease, you incur construction costs to modify the unit for the new tenant. Collecting rent, responding to repair requests, and maintaining common ground are all your responsibilities. Some owners prefer to handle their projects on their own. Others prefer to hire a management company to handle those tasks.

Wholesale Flipping

A third active real estate investment gaining popularity is reselling homes to house flippers. In this case, you would purchase a home below market value, and then put it back on the market for individual home flippers. This requires a strong knowledge of the real estate market. You may need to invest in the home to attract buyers – for example, upgrading the electrical system to current standards.

Although time-consuming, active real estate investment can increase your company’s cash flow and profitability. It is important to understand the advantages and disadvantages of any investment property before you begin the purchase process. With a firm understanding of the time and financial commitment, you can successfully invest in real estate.