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Benefits of Commercial Real Estate

Benefits of Commercial Real Estate

Good investors know that evaluating all the pros and cons before taking action on an investment is critical. They want to look for the good and the bad so they can minimize their risk and maximize their return. One really good way to maximize a return is by having a diverse portfolio. This includes knowing and implementing multiple real estate strategies as well as having different types of assets.

While residential real estate is common for new investors, some want to do commercial real estate investing right out of the gate. Others may only invest in commercial later in their professional real estate career. Here are some reasons why we like commercial real estate.

  1. High Returns

    Commercial properties typically are larger and higher priced and can produce much higher cash flow and returns. Bigger properties can mean more tenants and ultimately, more tenants mean more money.

  2. More Qualified Tenants

    With commercial, you are usually renting or leasing to a business which means they have a vetted interest in making your property an income producing place of business for themselves. This results in an income producing asset for you. Business owners want a place where they can create a long-term residency and pay accordingly.

  3. Triple Net Leases

    This is where the owner does not have to pay any property expenses because the lessee is. The lessee would handle the direct property expenses like real estate taxes, utilities, etc. so the owner only has to pay the mortgage.

  4. Longer Leases

    The lease terms usually include a longer lease. Businesses do not want to move year to year. They want to establish a place of residency that does not have to move. This means less turnover and vacancy for the property owner. It also allows for consistent cash flow.

  5. Value-Add Opportunities

    Commercial properties are valued based on their revenue, so the higher the profits or cash flow the owner receives, the more their property is worth. This can allow for an increase in value much sooner than residential but also, can mean for greater opportunity to expand.

Commercial real estate can have its pros and cons but knowing what you are getting into from the beginning and understanding why investors like commercial real estate can help you determine if it is the right strategy for you.

Areas of Review

Takeaway

Big picture takeaway points

  1. Good investors know the good and the bad, so they minimize the risk and maximize the return.
  2. Some investors think investing in commercial RE is too risky for a new investor, when the truth is many times it's less risky with bigger returns.
  3. Understand the pros and cons and then decide if it's right for you.

Reflection

Self-reflection questions to think more about the content

  1. What is my ROI? In many instances there are higher returns with the same amount of work with a commercial deal.
  2. Could I get funding? Many commercial deals can get 100% funding due to the proof of revenue already generated monthly.
  3. Is this the right strategy for me? Do your due diligence with any strategy to make sure it is the right one for you and in your price range.

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