The decision to invest in commercial real estate should not be taken lightly.
Before you move forward with a purchase, you should conduct enough research so you feel comfortable with both the transaction itself and with the investment strategy in general.
So – is investing in commercial real estate a good move?
Of course, that answer depends on a number of factors having to do with your financial goals and the specific investment opportunity.
But there are a few general reasons why commercial real estate can be strong investment.
Before listing them, let’s first take a look at what commercial real estate actually is.
What Is a Commercial Property?
A commercial property can be described as any property that is used for business purposes or to generate income.
The following property types are some of the most common in the commercial arena:
Benefits of Investing in Commercial Real Estate
Several benefits make commercial real estate investing a good choice, but like with any investment, you need to do your homework and research ahead of time. Simply investing in any commercial property isn't going to boost your portfolio.
With that said, some of the elements that make commercial real estate a good investment include:
Regular Income – money comes in just because of the nature of the investment, without having to make a sale like you would by owning stocks.
Capital Appreciation – commercial properties can increase in value significantly over time, especially if inflation is high and rent prices rise.
Security – commercial real estate relies on satisfying basic needs and services and can be far less volatile than stock markets when it comes to investing.
Diversity – most properties have multiple tenants, so you aren’t tied to the performance of one business for the whole of your investment. If one tenant leaves or doesn’t pay, it has a minimal effect on your overall portfolio.
Leverage – Since you likely won’t purchase a property fully with cash, you have the potential for higher returns on your down payment. Lenders also look favorably upon loaning money for commercial real estate as it has performed well historically.
Potential Downside of Investing in Commercial Real Estate
Of course, it wouldn’t be fair to list all the benefits without mentioning a few potential disadvantages. Depending on your level of involvement in the property, there could be a considerable time commitment with your commercial real estate investment. To maximize your return on investment, you will need to put a lot of time into the property and its tenants.
There are also maintenance costs to consider when owning a commercial property. You may be able to take care of some maintenance yourself, but other jobs will likely require qualified assistance. There are also risks associated with having tenants, visitors, or shoppers getting injured on your property or doing damage that could have a negative impact.
Overall, the pros often outweigh the cons, and you can usually play with the terms and the situation to find a balance that works well for you. If you'd like to find out if you're eligible for a commercial real estate loan, take a few moments and apply now.