Commercial Real Estate Is A Good Investment: Here Are 8 Reasons Why…
The real estate industry has proven itself a bankable field for investors. It has generated massive income through the years and has produced billionaires, the likes of Sam Zell, Stephen Ross, and Donald Trump. Real estate industry’s diverse scope of investment options include rental properties, real estate stocks, investment trusts, and crowdfunded deals.
Indeed, real estate is an exciting venture to be in. If you are looking for a great place to start investing, diversify your investments, or generate relatively higher income, opt for commercial real estate (CRE).
What is Commercial Real Estate (CRE)?
Basically, commercial real estate properties are those that generate income. These are pretty much business infrastructures, such as stores, warehouses, restaurants, office buildings, accommodation spaces, leisure and entertainment buildings, and others.
CREs are considered to have a higher-risk, but take note that in the world of investments, the higher the risk, the higher the reward is. It may sound overwhelming at first causing some hesitation, so here are 8 reasons why you should consider pursuing investing in commercial real estate.
Let’s talk money. Commercial real estate properties are commonly rented out or sold at a higher price, often tenfold higher in comparison to residential real estate properties. As a matter of fact, *the commercial real estate industry in the US alone accumulated a whopping total of $27 billion in annual revenue from year 2020. **If we are to reference the report from the National Council of Real Estate Investment Fiduciaries (NCREIF), 12.7% of that, or more than $3 billion dollars, goes back to investors as profit. This is in comparison to the 8.8% annual return of investment in residential real estate properties.
More income stability
Residential real estate properties are often limited to a one-year lease agreement. While this is a good thing for tenants, the concern this entails for investors is the high turnover rates. With these one-year lease agreements, investors are only assured a year in each tenant, as they are free to decide whether to stay or move out after a year.
Meanwhile, commercial real estate properties have longer lease agreements of three years in minimum, generating a more stable income flow for investors. Another great thing about this is that it also reduces the hassle that goes with finding new tenants.
Commercial real estate properties are commonly fewer in number as compared to residential properties. This means that your CRE property has a higher chance of being sought out and can be easily accessible to business owners. Businesses aspire to grow and expand their market reach and they typically do this by branching out. With this, they will be in search of commercial real estate properties. That is when you enter the picture.
On the other hand, residential real estate properties are growing in number. Therefore, the competition is tight and challenging. Needless to say, the presence of numerous competitors reduces the chances of profit.
Freedom on scale of investment
With commercial real estate properties, you have full liberty to decide whether to invest in full-scale establishments, such as malls, hotels, and casinos, or choose to put your money on small-scale individual facilities. It is all up to you.
If you are a beginner in the industry, it is recommended that you start with small-scale establishments or infrastructures. It can be your way of testing the waters. Once you get a hold of it, you can start increasing and diversifying your investments.
Property Maintenance isn’t Always on You
Commercial real estate properties are often rented out by business owners. Regardless if these are large-scale or small-scale businesses, there are investment opportunities, like absolute net investments where the tenant takes care of the building, maintains their space, even improve the property since space maintenance and appearance is tagged crucial in generating customer sales and customer retention. This is good news for you, as an investor, since a well-maintained and improved property increases in value over time and reduces the investor’s total cost.
In instances where renovations are needed or maintenance concerns are encountered, most commercial real estate properties operate on triple net leases. This means that majority of these property-related expenses, such as utilities, insurance, and taxes, are taken care of by the tenants.
This is contrary to residential real estate properties which must be maintained at all times. Otherwise, tenants would complain of maintenance concerns.
Professional tenant-renter relationship
Another advantage of having business owners as tenants is a more professional dynamic in tenant-renter relationship. Business owners maintain a certain image of credibility. With this, concerns are typically settled in a more professional approach; whereas, residential tenants often cause concerns on payment, unnecessary demands, and policy compliance.
This may seem a simple advantage in text but in reality, residential clients are more likely to demand more and cause stress over time as compared to commercial clients.
More time to rest and relax
Imagine getting a phone call from your residential tenant in the middle of the night, complaining about a leak in the property you are renting out. Even just the thought of it stresses you out, right?
This is one of the reasons why you should opt for commercial real estate properties. As mentioned, CRE clients generally require less attention. If they do, they are typically requested in the day since businesses operate in the standard 9-5 schedule.
Less demands from clients means less time to tend to your commercial real estate property. Consequently, you have more time to spare, which you can use to spend with your family, in venturing out to other investment options, or a quality time for yourself to rest and relax.
CRE Can Generate Great Wealth
If you’re still in doubt of the CRE’s ability to generate income for your investments, remember that it has produced billions across the globe. This is a testament of how established this investment platform is. The initial investment is bigger as compared to residential real estate properties. However, the pay-out is also bigger. When pursuing investing in CRE be sure to seek advice and help from those professionals associated with CRE. You can opt to work with smart and experienced commercial real estate brokers or ask advice from real estate lawyers. This way, you can reduce any risks of income loss and instead maximise your investments to reap great results.
With such high income return and numerous advantages, CRE is a good option when looking to diversify your investment dollars. People have already taken their share from this great investment option. Of course, you want to make the most out of your money, and from the advantages you just read, where best to invest but in commercial real estate. Planning to invest in commercial real estate? Read our article 5 Steps to Buying Your First Commercial Property that will walk you through the steps on how to get started investing in CRE.
Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at firstname.lastname@example.org.
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