Benefits of Commercial Real Estate Investing
Investing in commercial real estate can be very rewarding, both personally and financially. For many, the objective of investing in commercial real estate is for future wealth and security; others utilize it for tax benefits and increased diversity on investments. As an integral part of an investors’ portfolio, commercial real estate offers an abundance of benefits for investors. The first step to getting started in commercial real estate investment is understanding what benefits they include, and how they can potentially benefit you.
A commercial redeveloper can take advantage of the following benefits:
Higher Income: The hallmark benefit of investing in commercial real estate is higher potential income. Generally speaking, commercial properties typically have a better return on investment, which averages from six to 12 percent, while single-family home properties fetch between one and four percent. Secondly, commercial real estate provides lower vacancy risk because properties are spread over several units. In addition, lease contracts are generally longer than those you will find with residential real estate.
Cash Flow: Commercial real estate has one very distinct advantage: a relatively consistent stream of income. What’s more, commercial properties typically have much longer leases than residential rentals, which means steady and reliable income on a monthly basis. Lastly, commercial properties generally consist of multiple units which means multiple streams of income.
In some cases, tenants will also pay operating expenses on a commercial property. Known in the industry as triple net lease, this will generally include the lessee paying the building’s real estate taxes, property insurance and maintenance costs, in addition to monthly rent.
Less Competition: Another advantage of commercial real estate is less competition. Investing in office buildings and shopping centers is a major endeavor for many investors, given it’s out of their comfort zone more often than not. For experienced investors, commercial real estate represents viable opportunities to increase their financial wealth.
Longer Leases: Perhaps the biggest perks of commercial real estate are the attractive leasing contracts. Commercial buildings generally have longer lease agreements with tenants than residential properties, which offers impressive returns and considerable monthly cash flow to investors. In many cases, lease agreements for commercial properties are signed for multiple years.
The question of ‘how to invest in commercial real estate’ only has one answer: with due diligence. Like any investment deal, it pays to do your homework and due diligence is a critical element to ensure success in real estate. Learning the ins and outs of commercial investing is important, but actively conducting market research is even more significant. In essence, the function of due diligence is to verify the commercial property is a viable investment option.