Why Commercial Real Estate is a Great Investment Asset

The following article is guest post by Robert Dekanski of The Robert Dekanski Team.

Commercial real estate investing can be a great investment for anyone looking to grow their portfolio. It can provide investors with stable passive income while offering long-term capital appreciation potential. There are many things to consider when investing in commercial properties. However, with the right investment strategy and research, it can be a lucrative venture. Here we will discuss why investors should consider commercial real estate investment.

What is Commercial Real Estate?

Commercial real estate (CRE) is any property used for business purposes or for making money. This includes office buildings, retail spaces, industrial complexes, warehouses, and multi-family properties. Unlike residential real estate investing, this type of property is typically leased out to businesses rather than individuals. Commercial property management requires more time and capital—especially if there are multiple tenants. However, the higher rental income and lower vacancy rates often make up for the extra effort.

Why Commercial Real Estate Can Be a Good Investment

While real estate investments can be a good source of income, whether it’s residential or commercial property, several aspects of commercial real estate set it apart. Here are some of the things that help CRE investments stand out as a top way to diversify your investment portfolio.

More Variety

One of the biggest advantages of investing in commercial real estate is the number of options. As mentioned above, there are a variety of different property types available. Each type has its advantages and disadvantages that must be weighed carefully before investing. Some, like office space for rent, are broken down into additional classes.

In general, retail real estate is one of the lower-performing classes due to the rise of e-commerce and online shopping trends. There’s also the potential for longer periods of vacancy with retail. This is similar to other types, like industrial real estate and warehouse space for lease. Some investors look to multi-tenant properties to offset the risk.

Higher Returns

Real estate investing can be an excellent source of income, and commercial real estate tends to have a higher annual return than residential properties. This is because commercial property leases tend to be longer-term leases. Furthermore, rental rates can also be higher due to businesses generating more revenue.

Additionally, certain types of commercial real estate investments can be eligible for real estate tax deductions or tax incentives. These benefits can help reduce the overall cost of ownership and increase ROI (return on investment). Depending on the CRE asset class, investors may be able to take advantage of depreciation tax benefits that are not available with residential rental properties.

Better Potential Locations

Location plays an important role in the success of any real estate investment strategy. Retail properties or restaurant real estate are often located near major highways, business districts, or high-foot-traffic areas. These features make them attractive to tenants looking to grow their businesses. Being in high-traffic commercial zones also makes business owners more invested in maintaining the property.

Other commercial real estate properties, such as industrial warehouses or self-storage facilities, may not prioritize being near major roads. However, they still need prime commercial locations to ensure accessibility. Regardless of property type, those in high-growth job markets can help ensure that the commercial space remains occupied. This provides a steady cash flow.

Quality Tenants

Because commercial real estate tenants are typically businesses, investors are less likely to deal with issues common in residential rentals, such as late rent payments or property damage. Businesses have a vested interest in maintaining their reputation and taking care of the property.

Another advantage of having business tenants is that the landlord-tenant relationship remains professional. Investors are less likely to receive calls at odd hours about problems, and communications are typically more structured and professional.

Lease Flexibility

Since there aren’t as many tenant protection laws associated with commercial leasing, landlords can have more freedom in structuring leases. Commercial leases are often longer-term contracts, meaning vacancy rates are lower than residential real estate.

There’s also the benefit of triple net leases (NNN leases), which are common in commercial real estate investing. NNN leases require tenants to pay base rent plus property taxes, insurance, and maintenance costs. This minimizes landlord expenses and maximizes investment returns.

Tips For Investing in Commercial Real Estate

Now that you’ve seen why commercial real estate can be a good addition to an investment portfolio, how can you get started? Here are some tips to help you on your way:

• Research the market: Understanding commercial property types, real estate financing options, and market trends is essential before making a purchase.
• Develop an investment strategy: Outline your investment goals, expected return on investment (ROI), and how you will manage the CRE asset.
• Network with professionals: Build relationships with real estate investors, brokers, lenders, and property managers to gain valuable insights.
• Seek legal advice: Consult with a real estate attorney to ensure compliance with zoning laws, lease agreements, and tax regulations.
• Invest wisely: Look for high-growth markets with strong rental demand and low vacancy rates. This will maximize cash flow and property appreciation.

With these tips in mind, you can better understand the commercial real estate market and start investing.

Add Commercial Real Estate to Your Portfolio

Commercial real estate investing is a great way to diversify your portfolio and set up a steady stream of passive income. For landlords, having business renters is a good sign. This is because they are less likely to miss paying their rent than residential tenants.

Long-term business leases also offer some income stability. This makes real estate investments more appealing to investors. Are you interested in investing in business real estate? Now is a great time to explore real estate trends. Talk to an experienced broker to see if this is the right time for you to make an investment.