In today’s economy, there are a lot of investment options available to someone looking to invest. The goal is to invest your money into a tangible asset that can give you more control of your investment than owning fragments in companies through shares of stocks. A great option is investing your money in Commercial Real Estate (CRE). A lot of people think that they need to be a savvy investor with tons of money if they want to engage in CRE investment, but in fact, knowing when, what, and how to invest in CRE are key factors that bring breakthrough in owning your first commercial property no matter what your economic or financial status is. So to answer the underlying question — “Can anyone invest in Commercial Real Estate?”… Yes, anyone can invest in Commercial Real Estate.
There are a lot of benefits to CRE investments, but there are certain drawbacks too. In this article, I will be sharing with you some of the major benefits of owning a commercial property along with the drawbacks as well.
Benefits of CRE Investment:
- Steady cash flow with high earning potential
- The best reason to invest in CRE is the income potential. Compared to stocks, bonds, equities, or even residential properties, annual returns on CRE investments are typically higher ranging from 6% to 12%. Also, longer lease-term contracts secure your profit in the next half a decade or so. Thus, CRE is a fixed, passive, income-generating type of investment.
- Stable, safe, and less risk
- Changes happen every day in the market and could bring a negative impact on your investments. However, CRE gives you more control of your investment because it is a tangible asset.
- Appreciation of asset value over time
- It has always been proven that the longer you hold onto your CRE, the more money goes into your pocket. CRE properties generally increase in value because of internal factors such as age and condition of the property, improvements and renovation, and external factors such as supply and demand imbalances.
- Tax benefits
- There are numerous tax benefits in owning a CRE. You get tax deductions on mortgage interest, property taxes, operating expenses and costs, and many more. Also, if you own and sell a commercial property, you may be able to avoid capital gains tax through a 1031 Exchange! Learn more about 1031 Exchange by clicking 10 Things to Know About 1031 Exchanges.
Drawbacks to CRE Investing:
- Expensive and highly illiquid
- Typically, acquiring a commercial property requires more capital upfront and more maintenance costs. Because of its nature of being illiquid, CRE investment doesn’t give you the freedom to pull out your money that fast whenever you choose.
- More work and requires time commitment
- The upkeep and maintenance of CRE properties can sometimes be stressful especially when you’re dealing with multiple leases. Thus, CRE investment is management intensive which is why it requires time commitment.
- Increased vacancy
- Increased vacancy represents lost income for the property. CRE properties that have a small number of tenants are prevalent to this risk as it can greatly affect the income that the property generates even by losing one of them.
At this point, you are probably weighing your options on whether to pursue CRE investing or not. If you ever do, here are some things to consider before you jump into CRE investing. Make it a point to get clear answers to the following questions below before you decide on investing in any commercial property.
Questions to Consider Before Investing in CRE:
- What made you decide to invest in CRE? For what reason(s)?
- What type of CRE property are you looking for?
- Why is the location of the property important?
- Do you currently have ample knowledge and skills in CRE? Are you willing to learn?
- Do you have time and commitment to investing in CRE?
- Are you willing to take risks in CRE investing?
- How much work and money are you willing to put into a CRE property?
- How will you finance the property? Do you have good credit standing?
- Lastly, are you mentally and financially prepared to put your money in a sizeable investment such as CRE?
It all boils down to having the right mindset when investing in CRE. Even after outlining all this information above, you may still have questions about investing in CRE. Please feel free to contact us anytime with your questions and concerns. The Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment and business goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE