Real Estate Investment

Various Advantages Of Commercial Real Estate Investment

Most people consider only residential properties when it comes to investing in real estate. If you are also considering only residential properties for your real estate investment, you are missing out on a huge opportunity. Commercial real estate investment offers a much bigger income potential as compared to residential real estate. Here is a list of some of the major advantages of investing in commercial real estate.

Higher Income

One of the biggest benefits of investing in commercial real estate is that it offers much higher income potential as compared to residential real estate. The annual return on a commercial real estate property can be much higher as compared to other investments. Typical commercial real estate can offer returns ranging from 5% to more than 15% with apartment buildings or multifamily properties providing returns towards the lower end and suburban office space typically offering returns at the higher end. You can contact Live love at home Real Estate Group for all the information you will need.

Regular Income

Commercial real estate investment offers a regular stream of income that is typically not possible with residential real estate investment. Since commercial properties are rented through the use of leases, it ensures a regular stream of income. You should also consider the fact that the lease rate for commercial property tends to be higher than the residential property. A commercial property also keeps the lease for a much longer period of time and has fewer vacancies which means it offers a much higher stream of income and at a more regular interval as compared to residential real estate.

Higher Cash Flow

The equity in commercial real estate can be utilized many times over through leveraging. In simple terms, leveraging means borrowing money to make investments with the expectation that the profit generated from the investments will be greater than the interest to be paid on the loan. This allows you to buy a much bigger property by putting down a smaller percentage of the final purchase price and financing the remainder.

This allows you to invest in many properties by leveraging your commercial real estate investment. Financially, leveraging offers a much higher return as compared to buying outright. Banks and other financial institutions find commercial real estate leases much more reliable due to a stable income flow which means you will find it easier to leverage your commercial real estate assets as compared to residential real estate assets.

Lower Risk

One of the biggest problems with investment in real estate is that there is always risk associated with real estate investment as a property lying vacant does not produce any income but does have some kind of operating costs. Investment in commercial real estate means there is less risk as there are a lot more tenants in a commercial property as compared to a single family residential property where loss of a tenant means 100% loss of income.

Tax Benefits

Commercial property offers generous tax benefits. For instance, there are significant depreciation allowances on equipment such as lighting, carpets and air-conditioning among other things. You should also keep in mind that commercial properties have significantly higher building allowances which means you can save a lot of money on taxes with investment in commercial real estate.

To understand the tax benefits, you need to consider the fact that certain improvements such as flooring and appliances may be fully depreciated in a period as short as five years. This depreciation can be used as a tax benefit to as this passive loss can be utilized to offset other types of passive income. In simple terms, it provides a net higher after-tax yield. It is recommended to consult a tax advisor to fully understand the tax benefits of commercial real estate investment as these tax benefits are dependent upon the taxable income of an individual.

Inherent Value

Different sectors in economy go up and down with time but nothing can match the intrinsic value of a commercial property. Most of the investment classes do not have any inherent value. The structure and location of commercial real estate will always have value even when the tenants are not able to achieve success. In other words, commercial real estate investment is less risky and offers much higher rewards as compared to the stock market or other investment classes.

Less Competition

Most people do not know that there is a lot less competition in the commercial real estate investment market as compared to the residential market. One of the reasons is that most people are not aware of the advantages offered by commercial real estate market as compared to the residential market. Also, commercial real estate investment requires a higher level of understanding with regards to financing structure and other such things which means fewer investors try to invest in commercial real estate as compared to residential real estate.

Higher Appreciation

Commercial real estate allows investors to invest a lot of money on their properties while abiding by the local government approvals and regulations. As an investor, you can spend money on modernizing the property, restyling the interior or exterior of the property or applying for a zoning change and other such things. In other words, a commercial real estate property is an almost perfect way to invest extra money in order to generate higher returns which is not possible with most other investment classes. Also, existing commercial real estate locations continue to increase in value even when new properties come into the market.

Diversify Your Portfolio

Commercial real estate investment allows you to diversify your portfolio by investing in hard assets. Keep in mind that commercial real estate is a tangible asset that will remain there and won’t be gone tomorrow. It’s true that the occupants of a commercial building may come and go and the valuation may go up and down over the years but the land and property is going to have some value at all times. It also offers a great way for investors to diversify their portfolio into different asset classes.

Overall, investment in commercial real estate can be potentially very rewarding provided you choose the location and property carefully. Keep in mind that everything takes longer in commercial real estate investing as compared to residential real estate. Finding new tenants takes a lot longer and due diligence also takes months, but leases are also longer. It takes patience to get adequate returns, but the returns tend to be higher and much more stable as compared to other investment classes.

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