Real estate investors have a range of options when it comes to the types of properties they choose for investment. One of the best options is to start investing in commercial real estate. It has some nice advantages when compared with other types of properties, and it could be a good solution for your investment needs. Let’s learn more about this type of real estate and the biggest benefits you can expect as an investor.
What Is Commercial Real Estate?
Commercial real estate is sometimes simply referred to as CRE. It refers to commercial properties like office spaces, warehouses, and retail buildings, for example. They are properties where commercial activities and commerce take place. Most of the time, commercial properties will be leased to tenants. Those tenants are involved with income-generating activities that take place on the property.
Of course, you are wondering whether you should bother with commercial real estate as an investor. Does it really provide you with any advantages over other types of investments?
The Main Benefits of Choosing Commercial Real Estate Investments
You will find that commercial real estate is where many people tend to make their fortunes. There is a lot of potential for this type of real estate, and it comes with quite a few advantages. Let’s look at some of the biggest benefits below.
Make a Profit
The reason people make investments in anything in the first place is that they want to make a profit. With commercial real estate, there is a great opportunity for making a fast ROI. It can also provide regular income, helping to increase your current cash flow and income. The yields are generally higher than what is found through stocks and bonds.
Commercial property has the potential to provide investors with a substantial amount of income while they hold the property. If you have a good property, you will find that the tenants will want to stay at the location. Other tenants will be willing to pay more when space does come available.
When you buy and hold a commercial property for a few years, it can start to appreciate. This means that in a few years, the value of the property you own could end up being quite a bit higher than what you paid for it. This is especially true when you are taking good care of the property, adding amenities, and you have chosen a prime location.
Lower Risk
One of the other reasons investing in commercial real estate can be such a great option is because it has less risk. When compared with other types of investments, you will find that CRE is not as volatile. You can often secure long-term leases from tenants. They could be for as long as three to five years. In some cases, they might even be for longer than that. This means you can ensure that you are making money from the property for years at a time.
Of course, to ensure that you have low risk, you still need to do your due diligence and make sure you are choosing a quality commercial property. It needs to be in an area where people will want to lease the space.
Leverage
Many investors count leverage as one of their favorite benefits of choosing commercial real estate. This means that it is possible to place debt on real estate that can increase the purchasing power of each dollar of equity in the property. It is often easier to buy more commercial properties once you have one thanks to leverage. You can grow your real estate empire in less time.
Better Tenants
When working with commercial tenants, you will find that it is often far easier than working with residential tenants. Those who are looking for properties for their business will likely have better credit and will work to take better care of the property. After all, it will be where they house their business. They want it to look good for their customers and clients. There are fewer issues when it comes to working with tenants for commercial properties. Overall, it tends to be a more professional experience.
Finding the tenants can sometimes be a little more difficult, though. This is because business owners will have certain requirements that need to be met concerning things like the size of the building, amenities, features, etc. that they need for their business. As long as you have researched the area and property, and you know the types of tenants you need, it should be possible to fill the vacancies.
Easier to Handle Responsibilities
Property owners will also find that it tends to be easier to handle certain types of responsibilities for property management with commercial spaces. This is because the commercial properties tend to only be occupied during normal business hours. The tenants will likely only be contacting you during those business hours. There tend to be fewer major problems that go wrong with commercial properties that are well-maintained, as well.
This isn’t to say that you’ll never have an emergency you can need to take care of, though. It’s just that they don’t happen as often. Many commercial real estate investors choose to hire property management companies that can handle any of those emergencies that occur. Even though it costs to hire one of these companies, most find it to be well worth it.
Less Competition
You will also find that there is less competition when compared with other types of real estate investment. This is because these are larger purchases, and not everyone can afford commercial real estate. It’s less likely that you’ll need to go head to head with someone else who wants to buy the same real estate. There are plenty of options available. A little research can help you find the perfect CRE for your first investment, which you can likely get without struggling against other people bidding on the property.
Tax Incentives
Finally, investors love the tax incentives often found with commercial properties. The maintenance of the property can be costly, but the IRS understands this. They offer a range of tax incentives to property owners to help to offset the cost of running the property and keeping it maintained.
It is possible to take deductions related to interest, depreciation, and more. It may also be possible to defer taxes on cash distributions. Investors should speak with their tax specialists to learn more about the tax incentives that can come from buying certain commercial properties.
Consider Working with a Commercial Mortgage Broker
You may find that working with a commercial mortgage broker is a good idea. They can essentially be a negotiator between lenders and investors. They can compare lenders and find the ones that have the best interest rates for you. The brokers have a network of lenders and agents and can make it easier for you to determine how much you can borrow. Ultimately, they help to make the process easier.
When you are interested in commercial real estate, so you can experience the benefits discussed in the article, consider working with a commercial mortgage broker for some help.
