Investing in real estate can be a rewarding investing opportunity. However, commercial real estate investments have a high potential yield compared to residential real estate. According to a study done by Manulife Asset Management, commercial real estate offers more financial rewards compared to other investments like stocks and bonds.
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Nonetheless, most people are still uncertain about investing their money in commercial real estate. If this is you, here are some reasons why you should contemplate investing in commercial real estate.
- Improved Cash Flow
One distinct advantage of commercial real estate is consistent cash flow. This consistent steady income comes about because commercial real estate has longer lease periods. Unlike other investments like stocks that only bring profit when purchased and sold, commercial real estate can bring an opportunity to earn regular cash flow not considering the sale.
With the help of long-term leases, commercial properties can serve as a regular flow of income for investors. Since the lease agreements are long-term, there will be fewer vacancies, and this only means that you will enjoy a steady rental income.
- Hedge against Inflation
One sure way to benefit from inflation rates is by investing in commercial real estate. An increase in the prices of goods and services usually increases wages and profits. This economic growth benefits the real estate market as investors can raise the rent to stay competitive with the rates. Thanks to inflation, you can charge higher rates when renting space to new tenants. In addition, an increase in annual leases can help you improve returns and profits.
- High Appreciation
With real estate ownership, realizing high appreciation is a sure incentive. Since real estate is a hard asset, it has intrinsic value with regard to the land and the building. This is especially true if you choose the right structure and location for your property.
According to historical data, commercial real estate has a much higher appreciation trend compared to other investments. With this historical evidence in mind, you now need to renovate and make necessary improvements to your property with the aim of increasing its value over time. Look for cost-effective ways to make your building appealing as you wait to see the rewards of your efforts.
- Potential Returns
The commercial real estate market is an attractive investment opportunity as it gives investors the chance to earn high returns. Real estate has very attractive returns when compared to other markets like bonds and stocks. Commercial properties have a return of up to 10% which is higher than that of residential properties.
- Ownership Title
If it has been your dream to have the title of ownership to a property, commercial real estate is a good place to start. You can take pride in investing in a property that helps businesses and properties to thrive. It is very satisfying to give a working space for businesses and see them record amazing returns.
- Tax Benefits
Truth be told, not all investments offer tax benefits; however, real estate is an exception. The commercial real estate market is one of the rare investments where investors get incentivized by tax benefits. Potential tax benefits can help you deter some taxes, so you can offset your income flow. Potential tax benefits make it possible for investors to claim a few deductions when filing taxes. With regards to real estate, you will have tax benefits such as depreciation deduction and mortgage interest deduction. Basically, this is one way for the government to help you with the cost of running your property.
- Limited Competition
While there is a lot of competition in the residential real estate market, this is not the case for commercial market. Unlike residential properties, the commercial properties attract very few investors due to the perceived difficulty of investing in this market. The low competition headcount of investors in the commercial real estate market provides a good opportunity to find incredibly good deals.
- Reduced Risks
While there are different investment vehicles to put in your money, some can prove to be very risky when they fail. Well, if you are uncertain about investing because of the risks involved, go for a less risky market like the commercial real estate. Commercial properties are stable, have higher rewards, and are less risky than other investments.
Commercial properties have a high intrinsic value; hence, you can be assured that they will still have a high value even if it doesn’t turn out well with the companies or businesses renting. This is especially true if the property is located in a prime location where you will still be able to get the most out of your investment money.
In addition, long-term rental agreements also ensure that the investor gets a steady operating income due to reduced tenant turnover. This helps mitigate the risks that are brought about by economic swings.
- Longer Leases
Unlike residential real estate, commercial real estate has longer leasing contracts with the tenants. Commercial real estate investing provides investors with impressive returns because the lease agreements with tenants are signed for several years. Better yet, the lease terms are very flexible because of the few consumer protection laws governing commercial leases.
Another reason why you should consider investing in a commercial real estate market is that it allows you to leverage. Usually, real estate is purchased with 20 to 30% down payment and mortgage rather than 100% full funding. By using a commercial mortgage broker like Clopton Capital, you will have the ability to purchase the property without making full funding, and this can increase your leverage. By doing this, you will be able to build wealth quickly and get higher gains with your investment.
Also Read: Factors affecting Land Value
According to historical evidence, commercial real estate investing is highly profitable and offers a chance to attain financial success. Although investing in commercial properties can be challenging at first, the returns are very rewarding. Now that you know the benefits that come with this type of investing, take time to find investment opportunities that you are interested in.