How to Use LEX to Invest in Commercial Real Estate: A Beginner’s Guide
For years, real estate investment has been the domain of experienced developers, high-net-worth individuals, and institutions. LEX Markets aims to change all that.
The LEX platform turns commercial real estate properties into investment vehicles, allowing individuals to participate in real estate investing as easily as handling publicly-traded stocks.
This article looks at how the platform works and what you can expect when you use LEX to invest in commercial real estate.
How Does LEX Work?
The LEX Markets platform offers a variety of commercial properties that members can invest in. LEX members are able to buy shares in a building, just as you might purchase shares of a company on a U.S. stock exchange.
By purchasing these shares, you’re buying equity in a partnership vehicle, which means that the property owner retains the majority stake while shareholders reap a portion of the benefits.
While this innovative system doesn’t mean that profits are guaranteed, it lowers the barrier for entry-level investors and puts the lucrative world of commercial real estate investing within reach of the average consumer.
How LEX Makes It Easy
Thanks to LEX, any investor can purchase shares of a commercial real estate asset, regardless of whether they are accredited or non-accredited. Investors can get started at the low entry point of $250 per share and can conduct all of their trades through LEX’s intuitive user interface.
LEX and the Role of the Property Owner
LEX benefits property owners and investors alike. Investors provide an influx of working capital to commercial property managers. But because property owners retain a majority of the equity in the property, they’re motivated to operate the asset efficiently to produce healthy financial returns.
LEX vs. REITs
The LEX approach may sound similar to real estate investment trusts (REITs), but there’s a major difference. A REIT is an investment in a pool of real estate properties, while LEX gives investors the chance to invest in individual properties.
How to Use the LEX Platform
The LEX Markets platform is simple and intuitive. You can start your real estate investment journey by following these steps:
1. Set Up an Account
To set up an account, you can go to LEX Markets’ homepage or download the iOS app to your Apple device via the App Store.
After providing your email address, you’ll enter some initial information relating to your investment goals and current finances. These questions are required by federal law, and LEX maintains your data securely to respect your privacy.
If you’re an accredited investor, you aren’t required to document an accredited status as you might be with other investment platforms. However, non-accredited investors may be subject to limitations on their maximum investment level.
2. Explore Offerings
Once your account is set up, you’re ready to start browsing your investment options by clicking “Explore Offerings” in the main menu.
It’s easy to browse the active listings, each of which offers some basic details about the property’s valuation and past performance. Some properties are actively trading, while others are coming soon, so not every offering is available for an investment at a given moment.
You can also search for properties in the search bar if you wish to explore options in a particular region. Each property also contains a “Risk Factors” section that provides some information about the relative potential for gains and losses on the property, helping you make a well-informed decision.
3. Indicate Interest
If a property catches your eye, you have two options, depending on the property type. The first option is to “indicate interest.” An indication of interest (IOI) signals that you are interested in the property before any actual offering takes place.
An IOI is non-binding, so if you wish to purchase shares once the property is officially offered, you’ll be asked to confirm your interest with a purchase order during the initial offering.
4. Make an Investment
Some properties are actively trading, in which case you can click the “trade” button to invest in that asset. Your investments will come from your account balance, which you can set up beforehand to establish a working budget.
The LEX platform relies on limit orders. This setup means you set a maximum price that you’d be willing to pay for that asset. Your limit order is only executed once the asset price falls below this value. Otherwise, your limit order will remain in place with the LEX order book until you cancel it or until a date and time that you specify.
Note that you will not actually receive shares in your LEX account until the offering period expires. However, you’ll receive a notification once this period concludes, at which point you can begin monitoring your investment or consider making a trade.
Non-accredited investors are free to use the platform, but they’ll be limited to investments of 10% of their annual net worth. Accredited investors have no such limit.
5. Receive Distributions
When a property makes a profit, shareholders receive cash payments that match their number of shares. This process is known as a “distribution.” All distributions will be deposited into your brokerage account. The advantage of LEX is that you can use any brokerage account, which can be convenient if you have investments elsewhere.
Distributions are paid quarterly. As with any investment, distributions are not guaranteed. But if the property owner receives money from rent payments, they are required to pay distributions to shareholders.
You’ll also notice that the cash sitting in your LEX account may accumulate some residual interest each month. That’s because the cash you deposit is placed in an interest-bearing, FDIC-insured bank account. While interest rates vary based on the bank account, investors can still see a boost in their accounts from this interest.
If the property owner sells the property, you’ll receive the pro-rata portions of the sale as a final distribution.
6. Monitor Your Investment
Perhaps the most enjoyable part of investing is watching your money grow. You can keep tabs on your investment property through your LEX account, which can help you assess your profits, make decisions about when to trade your property, or cut your losses.
Positive returns are not guaranteed, which is why it’s important to monitor your investments carefully. Investors can earn money from the distributions they make from the investment itself or by selling their shares.
7. Trade/Sell Shares
You can also trade or sell shares through the LEX platform. All shares are issued under detailed securities law provisions that permit unrestricted secondary trading, so you can trade shares as easily as you might trade shares of stock.
However, you can only trade shares once they arrive in your account after the offering officially closes. Once it does, it opens for trading on the LEX platform. Again, LEX relies on limit orders, so when trading, you can set the minimum price at which you are willing to sell.
Navigating the LEX Platform: Additional Considerations
These guidelines can help you get started on the LEX platform. But as you navigate the world of LEX, you’ll want to pay attention to some other considerations as well.
Costs and Fees
Investors can get started with assets as cheap as $250 per share. Once you purchase shares, you’ll have a quarterly fee of 0.25% (1% annualized). This fee is deducted from any distribution payments you receive each quarter.
However, unlike other investment platforms, LEX won’t charge trading commissions for its investors, which helps you keep more of your distribution payments.
In some cases, individual property owners can opt to assess fees for property or asset management, and these fees will affect your distribution payments. For details on each property manager, investors can review the latest EDGAR filings to determine the specific fees.
Credits for Using the LEX Platform
As part of the platform’s initial promotion, LEX is offering bonuses to investors. Currently, you can receive:
- $50 when you deposit your first $500
- $100 when you deposit your first $2,500
- $500 when you deposit your first $10,000
Additionally, LEX offers a $50 bonus when you refer someone to the platform, and that user deposits $500.
Commercial real estate investments are passed to shareholders as K-1 investments instead of 1099 investments. This setup reflects a partnership between you and the property owner. Our setup means you’ll get many of the benefits of commercial real estate ownership thanks to your investment through LEX Markets.
You’ll pay federal tax on the distribution payments you receive, though if you invest in properties in multiple states, you may need to pay state tax for each state you’ve invested in.
Part of a Diversified Investment Portfolio
Investors understand the importance of diversification. One of the best ways to achieve this goal is to diversify your investments across several different asset classes. LEX Markets makes it easier than ever before to add commercial real estate to your broader investment portfolio.
It takes only minutes to set up an account, after which you’ll have access to a wealth of investment opportunities that you can use to supplement your income or plan for your future.