Many people have a basic understanding of investing in property, but usually, that property is residential real estate like a single-family home or condo. When it comes to investing in commercial real estate, however, there’s less general knowledge of exactly what that is and the benefits that this type of investing holds.
At Voit, we believe that CRE investing is the best investment you can make. Investing in commercial real estate can be a great way to earn a passive income and build long-term wealth.
How? Commercial properties, specifically, can generate rental income, which can be used to cover expenses and make a profit. They can also appreciate in value over time, providing investors with the potential for capital gains.
Read on to learn more about the benefits of investing in commercial real estate.
What is Commercial Real Estate?
Commercial real estate is simply a property that’s used solely for business purposes to generate a profit. This can include, for example:
- Office buildings
- Retail space
- Warehouses, and
- Other types of properties
Investors who purchase commercial real estate may do so to generate rental income, or they may hope to sell the property for a profit later on.
Types of Commercial Real Estate
As we mentioned, there are many different types of CRE. Below are brief descriptions of a few.
Office
Office spaces can range from high-rise buildings to more midsized properties in either business districts or office parks.
Interested in learning more about office space? Read on for our article “What Does the Future Hold for Commercial Office Space?”
Industrial
Industrial property is typically used as a logistics facility or warehouse. Common industrial businesses include fulfillment/distribution centers and self-storage facilities.
Interested in learning more? Read on for “Eight Great Reasons to Invest in Industrial Real Estate.”
Retail
Properties that deal directly with consumers are considered retail; such as stores that sell goods like clothing or groceries, malls, restaurants, and even salons.
Multifamily
Multifamily or multi-residential property is categorized differently than other residential real estate properties because they include multiple units; for example, apartment buildings and condo complexes.
Read on to learn about the evolution of multifamily property.
The Benefits of Investing in Commercial Real Estate
Now, let’s chat about the benefits of investing in commercial real estate. CRE can offer investors the following benefits:
High Income Potential
Commercial real estate properties are usually larger spaces and can include multiple units, which translates to potentially larger profits. There’s also the opportunity for a quicker return on investment because of the cash flow in rental income.
Capital Appreciation
There is a lot of capital appreciation potential for CRE as long as the property is maintained well and renovated. Making improvements to the property or raising rent can increase property value and profits over time as well.
During inflation, CRE continues to appreciate in value.
A CRE property is valued differently than residential real estate. While the value of residential real estate is based on the appraisal of nearby property comparables or “comps,” CRE is primarily valued based on the net rental income that’s generated. Therefore, it is often valued higher than residential properties.
Lower Risks
Investing in real estate always poses risks, but with CRE the potential risk is lower due to many factors, including:
- Favorable lease agreements, and
Low maintenance costs
CRE can pull in large and steady cash flow from high occupancy because of long lease periods. Industrial and retail properties tend to sign long-term leases in order to keep their businesses running. These agreements can be anywhere from three to five years or even longer.
Most CRE tenants are businesses, which usually means having more qualified and contentious tenants/clients that will want to maintain their spaces to benefit their own business needs. This, in turn, means less maintenance for the CRE investor/owner.
Lastly, many types of CRE can withstand market downturns better than other properties.
A Final Word
It’s important to note, however, that Investing in commercial real estate is not without its risks. Commercial properties can be more difficult to finance and manage than residential properties.
They also tend to be much larger, so they can be more expensive to maintain. But for investors who are willing to take on these challenges, commercial real estate can be a very lucrative investment.
CRE investing provides a dependable source of income, stability in value, and relatively low risks with high rewards. Now that you know about the benefits of CRE, it’s time to get you in touch with an experienced CRE broker. Get in touch with an experienced real estate professional today!
Interested in learning more about the benefits of investing in commercial real estate? Read on in our article “Is It a Good Time to Buy a Building?”