6 Benefits of Investing in Commercial Real Estate

8

The best investment on earth is earth.
Louis Glickman

Commercial real estate property refers to property that is used for business purposes. While other investment portfolios show a lot of volatility, sometimes offering low or no return, commercial real estate provides excellent reward profiles to investors. Examples of commercial real estate properties are office buildings, warehouses, industrial buildings, retail buildings, apartment buildings as well as ‘mixed-use’ buildings that may have a mix of office, apartments, and retail. In this blog, we will outline the 6 benefits of investing in commercial real estate.

1. Triple Net Lease

In the real estate business in the United States, a landlord usually is responsible for the insurance, real estate taxes and maintenance. But while investing in commercial real estate property, one can take advantage of a triple net lease. Triple net lease is “a lease agreement on a property whereby the tenant or lessee promises to pay all the expenses of the property including real estate taxes, building insurance, and maintenance.” [2] As an example consider the coffee giant, Starbucks. Starbucks usually signs these types of leases as they have a specific image and branding that they need to emulate in each shop of theirs. Hence, they manage the costs and the investor benefits from the lowest maintenance income producer.

2. Appreciation of Asset Value

Commercial real estate investments have provided excellent appreciation value in comparison to other investment types. The value of a property can rise because of internal and external factors. Internal factors consist of making cost-effective improvements to improve the usability and desirability of the property while external factors consist of supply and demand imbalances. [3]

3. Tax Benefits 

The US Tax code allows a commercial real estate investor to benefit from mortgage interest and depreciation deductions so that a large portion of their income stream is shielded. [5]

4. Ability to Leverage

Commercial real estate helps an investor to positive leverage. Positive leverage means “when a business or individual borrows funds and then invests the funds at an interest rate higher than the rate at which they were borrowed.”[6] An investor can very easily take a debt, keeping their real estate property as collateral, and invest that money on a higher interest rate. 

5. Earning Potential

One of the best reasons for investing in commercial real estate is its income-earning capacity. Due to the growing demand for commercial real estate, investors are able to capitalize quickly and for a longer period as opposed to other investment portfolios. This growing demand also inclines the rental value for the property. 

6. Passive Management

In residential property, the landlord is an active participant in ensuring that the tenant is provided with the right facilities. There are also instances of bad tenants which further adds to the stress levels of a landlord. With commercial properties, a landlord can take a more passive management approach. For example, if you own several units in one location, then a site manager can be recruited who would be responsible for managing the units. This in turn also lowers the operational costs per property and consumes a very small percentage of the landlord’s time. [8] Also, since there are limited hours of operation in terms of offices, there are fewer chances of a tenant disturbing a landlord late at night on the events of a lost key or wanting repairs. Commercial property is mostly guarded by alarm systems and if there are break-ins or emergency calls, then the security company would be responsible for calling the proper authorities. [9]

These are the 6 benefits of investing in commercial real estate. Should you require any further information, then get in touch with our real estate specialist, Tom Donahue, via Alumni Alliances, a professional networking platform, and alumni community. Tom Donahue is the CEO of Alumni Alliances and True North, an international investment banking organization that focuses on real estate, consumer goods, media & entertainment, lodging & leisure, foods & spirits, technology, and healthcare.

Also, let us know your thoughts on the article in the comments section and bookmark Alumni Insider for more blogs like this. 

References:
1. Featured Image – Pixabay
2. Triple Net Lease
3. Commercial Real Estate: 7 Unique Benefits of Owning Properties
4.
Image 2 – Scott Webb
5. Commercial Real Estate: 7 Unique Benefits of Owning Properties
6. Positive Leverage
7.
Image 3 – Shawn Ang
8. The Advantages of Investing in Commercial Real Estate Today
9. Pros and Cons of Investing in Commercial Real Estate

 

Please follow and like us:
Share.

About Author

8 Comments

    • Thank you, Gaurav. You can find commercial real estate opportunities via Alumni Alliances, a professional alumni community. Please visit http://www.alumnialliances.com for more information. Alumni Alliances provides a platform to find jobs, commercial real estate opportunities, investment, mentorship, provide business solutions, promote business or recruit talent.

  1. I was looking for some good blog on commercial real estate. I was searching over search engines and found your blog site. Well i like your high quality blog site design plus your posting abilities. Keep doing it.

    • Thank you so much, Siba. Please bookmark Alumni Insider for more useful blogs like this. Also, do visit Alumni Alliances via http://www.alumnialliances.com. Alumni Alliances is a professional alumni community where one can do job searches, recruitment, investment, promote business, provide business solutions, etc. Also, please do follow the social media handles of Alumni Alliances for a daily dose of trending videos on interesting topics.

    • It is great that you like this blog. You can benefit from investing in commercial real estate by joining Alumni Alliances via http://www.alumnialliances.com. Alumni Alliances is a professional alumni community that facilitates investing in commercial real estate, besides job search, recruitment, finding mentors, promoting business, etc.

  2. Daphyne Gracias on

    Hey this article is so helpful. I was so confused with people saying that it is better to rent commercial property than to buy it! Very nice

    • Alumni Insider on

      Thank you Daphyne for your comment. Yes, that is true! Commercial real estate properties are quite beneficial if you take the 1031 Exchange into consideration. We will be posting more articles on commercial real estate. Kindly please bookmark this blog site and also register on http://www.alumnialliances.com to find more opportunities.

Reply To Daphyne Gracias Cancel Reply