5 Reasons to Invest in Commercial Real Estate
There are lots of ways to invest in real estate. You can flip houses; rent out properties; buy real estate-related stocks, real estate investment trusts (REITs), and ETFs; or even take part in crowdfunded deals. Another great option worth eyeing? That’d be commercial real estate (CRE): a high-risk but also high-reward asset class, which encompasses a whole slew of property types you probably haven’t even considered investing in.
What is commercial real estate?
What exactly qualifies as commercial real estate? The most basic explanation, it’s any property designed to make money. It includes all the major categories you expect — retail stores, office buildings, industrial warehouses, restaurants, etc. — as well as more specialized properties, like storage spaces, hotels, casinos, and even healthcare facilities.
Why invest in commercial real estate?
Whether you’re coming from a long career in residential property or you’ve never invested in real estate at all, CRE can be a smart place to put your money. But why commercial real estate? Here are 5 reasons you might want to consider it for your real estate portfolio.
1. High-Profit potential
The biggest reason to invest in commercial real estate is simply its potential. Commercial buildings come with higher rents and price tags, and thus higher potential for returns, too. Instead of making a few hundred dollars on a rental home every month, you could make. You can get your ROI faster due to the influx of rental income. And since these are businesses we are talking about, you can significantly raise the rent compared to a residential structure. CRES, though, well they’re another thing entirely. There’ll always be a new amenity that you can add or a feature that you can install. Plus, if you have secured a prime location where tenants will thrive, then other investors will surely fight over your property should you decide to sell it in the future. Investing in Commercial Real Estate is a huge undertaking, true, but it also offers a lot of benefits. Not only does it have a faster ROI rate, but it also has fewer risks. The best thing about it, though, is that it’s fairly easy to triple its value with just a few tweaks.
2. Plenty of investment opportunities
Commercial real estate investment options run the gamut: You can invest in a full-scale mall or high-rise office building, or you can keep it small, putting those dollars toward a single storage facility, an industrial warehouse, or just one condo community. There’s a lot of flexibility both in what you can invest in and where you can do it.
3. Less turnover
If you’re from the world of residential real estate, this will probably excite you. Unlike apartments and single-family rentals, commercial real estate doesn’t typically operate on one-year lease agreements. Instead, most tenants sign three-year agreements at a minimum. This reduces turnover (and the hassle and cost associated with it) and also helps ensure stable cash flow for your business.
4. Conscientious Clients
Speaking of upkeep and maintenance, you will be pleased to learn that these chores are significantly easier compared to residential properties for two reasons. First, your clients are business owners as well so you can expect more professionalism. Second, since most of them are establishments that offer products and services, they’ll be concerned about maintaining their image as well and will surely try hard to keep the premises as clean and well-kept as possible.
5. A more diverse portfolio
If you’re already heavily invested in residential real estate, CRE can be a smart way to diversify your portfolio. As 2020 taught us, you never know what’s going to happen — with the economy or in the world. So having your investments spread across different assets is one of the wisest moves you can make in the long run.