The commercial real estate industry has long proven to be a bankable field for investors. It generates massive income and has produced billionaires like Sam Zell, Stephen Ross, and Donald Trump. The industry offers diverse investment options, including rental properties, real estate stocks, investment trusts, and crowdfunded deals.
Exploring Commercial Real Estate: A Lucrative Venture
Real estate is an exciting venture. If you’re looking to start investing, diversify your portfolio, or generate higher income, commercial real estate (CRE) is an excellent choice. It offers numerous opportunities to grow your wealth in ways that other forms of real estate might not.
What is Commercial Real Estate (CRE)?
Commercial real estate properties are those that generate income. These include business infrastructures such as stores, warehouses, restaurants, office buildings, hotels, entertainment spaces, and more. CRE investments carry a higher risk, but with higher risk comes higher reward. Although this may sound overwhelming at first, the potential returns make it worth considering.
Here are eight reasons why you should pursue investing in commercial real estate.
Bigger Profit
Let’s talk about the financial benefits. Commercial real estate properties typically sell or rent at much higher prices than residential properties. In fact, the commercial real estate industry in the U.S. generated $27 billion in annual revenue in 2020. According to the National Council of Real Estate Investment Fiduciaries (NCREIF), investors received a 12.7% profit share from this, which amounts to over $3 billion. This far exceeds the 8.8% annual return in residential real estate.
More Income Stability
In residential real estate, lease agreements typically last one year. While this benefits tenants, it can create high turnover rates for investors, meaning a constant need to find new tenants. However, CRE properties generally come with longer lease agreements, often three years or more. This ensures a more stable income flow and reduces the hassle of finding new tenants regularly.
Less Competition
There are fewer commercial real estate properties compared to residential ones. As a result, CRE properties are often in higher demand, making it easier to find tenants, especially for businesses looking to expand. On the other hand, residential real estate faces intense competition, which can lower profit margins.
Freedom to Choose Your Investment Scale
In CRE, you have the flexibility to invest in large-scale establishments like malls, hotels, or casinos, or you can choose smaller facilities. This allows you to start small and expand your investments as you gain more experience. Therefore, if you’re new to the industry, beginning with smaller properties is a good way to test the waters. Once you’re comfortable, you can diversify and increase your investments.
Property Maintenance Isn’t Always on You
Commercial properties are often leased by business owners, and they usually take care of maintenance themselves. In some cases, tenants may even improve the property, which increases its value over time. This reduces the investor’s overall cost while enhancing the property’s worth. Moreover, many CRE properties operate under triple net leases, meaning tenants handle expenses like utilities, insurance, and taxes, further reducing costs for the investor.
Professional Tenant-Renter Relationships
With business owners as tenants, the dynamic becomes more professional. Business owners maintain credibility and usually settle concerns in a professional manner. In contrast, residential tenants may have more demands and cause more stress over time.
More Time to Rest and Relax
One of the advantages of CRE properties is that they typically require less attention from you as the investor. Complaints and maintenance issues, if any, usually arise during regular business hours. This means fewer disruptions during your personal time. Additionally, less tenant attention means more time for you to relax, explore other investment opportunities, or spend time with your family.
CRE Can Generate Great Wealth
If you’re still uncertain about CRE’s ability to generate significant income, just remember that it has produced billions for investors globally. While the initial investment is higher compared to residential real estate, the potential payout is much larger. Therefore, before diving into CRE, it’s essential to seek advice from professionals, including commercial real estate brokers or real estate lawyers. This can help minimize risk and maximize your investment returns.
Even after outlining all the information above, deciding whether to go for a 1031 Exchange or a Cash Refinancing can still seem daunting. That’s why the LeveragedCRE Investment Team at Commercial Properties, Inc. is here to help you achieve your business and investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
Need assistance with your 1031 Exchange or DST? We’ve got you covered!
We’ve prepared a comprehensive, free e-book designed to guide you in achieving your long-term business goals or acquiring that dream property you’ve been eyeing.
Meet The LeveragedCRE Investment Team
Phill Tomlinson and Eric Butler are seasoned commercial real estate brokers with over 44 years of combined experience. They lead the LeveragedCRE Investment Team at Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, specializing in investment sales and tenant/landlord representation across the Phoenix and Scottsdale submarkets.
The team leverages their extensive knowledge and expertise to help investors and property owners maximize their returns and navigate complex real estate transactions with confidence.
Stay informed with the latest in Commercial Real Estate strategies designed to enhance your income property investment results by bookmarking www.leveragedcre.com. Let us help you stay ahead in the market!