If you’ve been thinking about how to build long-term wealth, chances are you’ve come across real estate as an option.
But while most people picture renting out a single-family home or fixing up a condo, there’s a whole other world of opportunity out there: commercial real estate.
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From office buildings and retail centers to warehouses and apartment complexes with more than four units, commercial properties can offer a unique way to grow your money. Not sure if it’s the right move for you? Here are five things to consider.
- Diversification for Your Investment Portfolio
When you hear people talk about investing in commercial real estate, they’re often looking for ways to balance out their portfolios.
Stocks and mutual funds can go up and down with the market, and while residential real estate is generally stable, it doesn’t always deliver the same kind of consistent cash flow or appreciation that commercial properties can.
By adding a commercial asset to your investment mix, you’re tapping into a different stream of income and potentially reducing your overall risk. Plus, with a tangible asset like a building or a retail space, you always have something of value, even if the market shifts.
- Less Day-to-Day Involvement
If you’ve ever managed a residential rental, you know that tenants can call at any hour with problems big and small. Commercial tenants, on the other hand, often take on more responsibility for the upkeep of the space.
After all, they’re running businesses there, and they want the property to reflect well on them too. This often leads to a more professional landlord-tenant relationship and fewer midnight phone calls.
Many investors also hire professional property managers to handle leasing, maintenance, and rent collection, making it easier to be more hands-off.
- More Income Potential Than Residential Rentals
One of the biggest draws of commercial real estate is the income potential. While residential properties might bring in a few hundred dollars a month in rent (after expenses), commercial spaces often bring in significantly more.
That’s partly because commercial leases tend to be longer; think five to ten years instead of just one. Businesses are also more likely to pay higher rents for well-located or high-traffic spaces.
Plus, landlords often pass along some of the property expenses to tenants through what’s known as triple-net leases. This can help reduce your out-of-pocket costs while increasing your profit margins.
- Long-Term Wealth and Stability
Commercial properties are often seen as long-term investments as they can provide consistent cash flow, appreciate over time, and offer certain tax benefits that help protect your earnings.
For example, depreciation deductions can help offset income, and interest on loans may also be tax-deductible. While it’s true that commercial real estate typically requires a larger upfront investment and a bit more research, the long-term financial payoff can be well worth it.
- Greater Control Over Value and Performance
With commercial real estate, value is often based on how much income the property generates, not just the neighborhood or comparable sales, as is typical in residential real estate. That means, as the owner, you have a lot more control.
If you improve the building, attract reliable tenants, or raise rents in a smart way, the property’s value can go up significantly. Even small changes, like upgrading signage or updating the parking lot, can have a positive impact on how the property performs financially.
All’s Well That Invests Well
Like any investment, commercial real estate isn’t without its risks. Market shifts, vacancies, and unexpected repairs can all affect your returns. But with careful planning, due diligence, and the right support team in place, it’s a path that can offer solid rewards.