Most people are focused on investing in real estate, such as single-family houses or condominiums. But if you’re serious about putting your money to work, you shouldn’t ignore commercial real estate. It has many distinct benefits for investors who do their homework.
Commercial Real Estate: The Case
When we use the term “commercial real estate,” we mean retail buildings, office buildings, industrial buildings, warehouses, apartment complexes, and other mixed use properties where there’s a combination of retail, apartments, office space, etc. And while each of these types of properties technically has its own nuances, they often get lumped into one big bucket called “commercial real estate.”
Investments are not perfect. However, if you look at the big picture there are many benefits to investing. distinct advantagesThere are many risks associated with commercial property investment. There are many:
1. Potentiality for Income
While every location is different – and economic factors obviously change from quarter to quarter – there’s strong income potential with commercial properties. Typically, you’re going to get somewhere between 8 to 12 percent annual rate of return.
That’s a much higher figure than most single-family homes, which usually fall in a range much closer to 3 to 6 percent when it’s all said and done.
2. Tax Benefits
There are many tax advantages to commercial property investments, in addition to the cash flow they provide investors. In fact, it’s these tax benefits that many high-dollar investors are most interested in.
First of all, there’s depreciation. This allows you to deduct a percentage of the property’s value from your taxable income every year. This can reduce your total tax burden.
You can also write the interest you owe on your taxes off of financing. This will allow you to save more. When you combine these two savings (and we haven’t even mentioned the power of 1031 exchanges when you eventually sell the property), the financials behind commercial property investments make a lot of sense.
3. Operation Hours Limited
Okay, here’s a benefit that most people don’t think about. When you own a residential property, you’re basically always on call. On Saturday mornings toilets could overflow and noise from neighbors may cause heated disputes late at night. With commercial properties, you don’t have to worry about this.
The hours of business for commercial property are usually limited. Businesses go home at night, which means you don’t usually have to deal with complaints or repair requests outside of normal business hours. You can also save money if your business has a commercial property managerAll of these calls will bypass your phone. Commercial property ownership is much easier.
4. Flexible Opportunities
When you buy a single-family residential property, you don’t have many options. It’s possible to live in the home or let it out to another party. It’s not going to suddenly turn into a restaurant or office building. Except for in rare situations, it’s zoned residential and it’s going to stay residential.
With commercial properties, there’s a lot of flexibility. Warehouses may be transformed into condominiums, offices can become office spaces, and warehouses could be used as truck parking. With so much flexibility, there’s always an opportunity to extract maximum value from your investment.
5. We have less competition
Nobody is going to hand you a commercial property, but it should be noted that there’s typically less competition among investors. That’s simply because the average investor is focused on single-family residential.
A lot of evidence does not support this claim. However, investors are reluctant to make commercial investments due to concerns that the remote working trend and other trends will reduce demand.
For those interested in making commercial investments, all of this is good news.
6. There are fewer emotions
The emotional impact of commercial property is less than that of residential property. Residential property involves people making decisions regarding where they will be living, while commercial property is purely a business decision. This is generally a better way to reduce stress and make more objective decisions for everyone.
It All Together
Every commercial property is different and should be evaluated individually. Having said that, you’ll find that most commercial properties offer some or all of the benefits highlighted above. If the property is priced right, it can make a great investment.