Many financial experts agree that there’s no such thing as a one-size-fits-all investment strategy in building a successful portfolio. That said, conventional wisdom recommends having a mix of liquid savings, bonds, stocks, and real estate.And when it comes to property, commercial investment real estate is arguably one of the best. It continues to provide an excellent risk/reward profile to investors who know what they’re doing.Commercial real estate is also primarily considered to be a less risky but reliably high-performing asset class. Unlike stocks that are subject to significant volatility or so-called safe assets like treasuries that offer almost no return on investment, CRE properties have the benefit of stability and profitability.No wonder many high-net-worth individuals have commercial real estate in their portfolios; in fact, some of them made their fortunes on these types of properties.CRE investing is often regarded as more complex than residential property investing, which only severe investors with serious funding can afford to do. But this is not always true. There are plenty of commercial investment property loans available for those who want to get into this asset class. Use them correctly, and it’s possible to build a CRE portfolio that can create real wealth.
Before we talk about the many benefits of commercial investment properties, it’s essential to understand precisely what types of real estate fall under the ‘commercial’ category. From an investing point of view, CRE assets are meant to generate profit through rental income or capital gains. It can roughly categorize them into these groups:
Thinking of buying a commercial property?
Perhaps one of the most significant advantages of commercial properties is that these assets, in general, are secured by leases that generate regular income streams. The money made is significantly higher than what you might get from typical stock dividend yields.Rental income from well-managed and stable commercial real estate translates to a predictable and steady cash stream that can protect investors during periods of financial market volatility.
Commercial properties have historically shown excellent appreciation in terms of value, often meeting (if not exceeding) even the most profitable investment types. CRE properties have the potential to go up in value from external and internal factors. External factors include imbalances in supply and demand.On the other hand, internal factors include proactive management—mainly investing in cost-effective property improvements to make the asset more desirable and more usable.
Research shows that commercial property investments often offer the highest correlations to inflation compared to the S&P 500, corporate bonds, 10-year treasuries, and similar asset classes. This is why many investors are attracted to CRE in a time when governments around the world continue to print more money in efforts to spur economic growth.They recognize the advantages of owning hard assets like commercial real estate to hedge against inflation. The price of multi-tenant assets, in particular, seems to rise when significant inflation occurs.Investments in real estate tend to benefit long-term from inflation. They also provide diversification because they are not directly correlated with the stock market. There’s a wide variety of commercial real estate types available for investing, too.
Commercial properties have a unique security advantage because it is one of the few types of investment considered to be a hard asset with meaningful intrinsic value.Think about it: It’s not just the structure itself that has value but also the land is standing on. Investors who know how to choose location and quality wisely can benefit from income reliability, knowing that their property can earn money regardless of what might happen to the market or their existing tenants. This is why the value of commercial properties doesn’t fluctuate as much as the stock market.
In the United States, the current tax code is advantageous for real estate owners in many ways. Depreciation deductions and mortgage interest can shield a significant portion of the investor’s income stream. Of course, it’s prudent to talk to your tax advisor to get the entire picture and understand the impact of owning a particular property on your taxes.Like any investment, commercial properties offer many potential upsides—but it does have a downside as well. These types of real estate often involve a lot of money and a lot of risks. Commercial investment property loans are also a little more challenging to acquire.So when deciding whether or not to get into commercial real estate investing, it’s essential to ask yourself these questions:
The success of your project will largely hinge on your ability to find a commercial investment property loan with good terms and interest rates. While there are many commercial mortgage lenders—from traditional banks to commercial hard money lenders—it won’t always be easy to convince them to put money into your project.This is why it’s essential to consult with a commercial investment property loan expert who can help you navigate the world of commercial property financing. With the proper guidance, it’s possible to secure an investment property loan that fits your needs and requirements.
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