Homeownership has been at the heart of the “American Dream,” especially following the Great Depression. Yet in today’s economic climate, the journey to real estate wealth is changing. According to https://realmo.com/ analysts, commercial real estate has become an alternative for everyday investors to create and sustain wealth for current and future generations.
A recent LendingTree survey found that 94 percent of Americans view homeownership as a key element of achieving financial success, but over half (51 percent) say owning a home is nearly impossible for them. Challenges such as high home prices, large down payments, student loan debt, and rising interest rates have been preventing many from becoming homeowners.
As a result, there is a growing trend of “forever renters,” as reported by The Wall Street Journal. More individuals and families are opting to rent indefinitely and are seeking alternative wealth-building strategies outside residential real estate. And one alternative is commercial real estate(CRE).
Commercial real estate includes properties used for business or income-generating purposes, such as office buildings, retail spaces, industrial facilities, multifamily housing, hospitality venues, and special-purpose venues. Unlike residential real estate, CRE investments often result in higher returns, a pretty stable cash flow, and opportunities for portfolio diversification.
The prospect of investing in commercial real estate can seem overwhelming and complex. But it can be accessible.
Here are five steps to begin building generational wealth through CRE.
1. Talk The Talk
CRE, like all industries, has a specific jargon that may seem like a foreign language. To understand the vocabulary use resources like Investopedia and Investor.gov.
2. Educate Yourself About The Different Asset Types
There are six main categories of CRE:
- Office, which are multi-tenant or single-tenant buildings classified.
- Retail, which are spaces for retailers and restaurants. These properties can either be standalone buildings or located inside of shopping centers.
- Industrial properties include warehouses, manufacturing plants, and flex spaces that combine office and industrial use.
- Multifamily types include apartment complexes, condos, and co-ops that offer rental income.
- Hospitality, under this category are hotels and lodging establishments targeting travelers.
- Special Purpose, these properties are amusement parks, churches, and storage facilities.
“The office market is presenting a point in time where investors with a longer horizon with higher risk capital can potentially acquire generational opportunities due to the price mismatch that is in the market today,” Aaron Jodka, director of national capital markets research at Colliers, told National Association of Industrial and Office Parks (NAIOP), now known as the Commercial Real Estate Development Association. “[Investors] will be able to reset the price with a new acquisition that would reset the rent basis and allow the investor to compete very well with the existing inventory that is in the market today.”
Examine areas where there is growth. “Take student housing,” one expert told the NAIOP. “There is only so much growth there. Student housing can never be as big as multifamily in general because that market is satisfying a certain slice of the 18-to-24-year-old market. Another asset class, self-storage properties.
3. Identify And Evaluate Sponsors
A sponsor is responsible for acquiring, managing, and executing the investment strategy for a commercial property, Forbes reported. In CRE, a “sponsor” is the individual or group (often a private equity firm) that identifies, acquires, manages, and often finances a CRE investment project, acting as the general partner and bringing the opportunity to investors.
A sponsor in CRE plays a crucial role in identifying and evaluating investment opportunities, overseeing property acquisition, and managing operations. They are also responsible for raising capital from investors to fund projects. Unlike investors, who passively contribute capital with the expectation of returns, sponsors take an active role in managing the investment and often receive a larger share of the profits in return for their role.
Sponsors can range in size and structure. Institutional sponsors are most often large entities, such as pension funds or endowments. Private equity real estate firms specialize in acquiring, managing, and eventually selling real estate assets to generate returns for their investors.
4. Explore Investment Platforms
Many commercial real estate sponsors partner with platforms that connect investors. Such platforms streamline the investment process and provide ongoing updates on performance.
For new investors, choosing platforms with strong investor relations teams and a commitment to long-term relationships is vital.
5. The Concept Of Transformational Wealth
While generational wealth is often framed as the ability to pass down assets to heirs, some experts stress that the focus should be on transformational wealth. Transformational wealth actively betters the financial status of family and community members in the present–not just the future.
Kevin “KayR” Robinson, co-founder of KayJay Consulting, explains the distinction to Finurah. “Generational wealth moves north to south—it’s long-term. Transformational wealth moves east to west—it creates immediate financial impact,” said Robinson, who taught himself the ropes of CRE after a career is an investment banker.
He turned to books on business, investing, wealth, and real estate for insight. “These books all provide entrepreneurs with a framework on success — not just in real estate, but life in general,” Robinson said. “You can apply the same principles in these books to any business, relationship or goal you want to achieve.”
Transformational wealth involves leveraging real estate investments to generate income that supports family members now, rather than solely planning for the future. For example, purchasing rental properties and employing family members as property managers, creates immediate financial stability. You can also partner with relatives to invest in additional properties, expanding wealth opportunities within the family unit.
“I meet people where they are so that they can think of transforming their situation,” Robinson said. I don’t hire people based on skill set, but potential. I am confident in coaching. I look for raw talent, whether it is a family or stranger.”
Robinson, a former Wall Street investment banker, has built a portfolio of over 100 rental units across Philadelphia and Harrisburg, Pennsylvania. Robinson incorporates family members into his real estate business.
Commercial real estate offers a powerful avenue for wealth generation that extends beyond traditional homeownership. By understanding investment fundamentals, leveraging available resources, and focusing on transformational wealth, individuals can take control of their financial futures.
