Investment 10: 5 Key Reasons to Invest in Commercial Real Estate

There is about $6 trillion worth of commercial real estate spread across the United States. This makes it a prime opportunity for investment, no matter where you live.

If you aren’t familiar with commercial real estate, we’re going to give you an investment 101 crash course. Commercial real estate is an excellent way of adding hard assets to your investment portfolio.

Keep reading to learn about five reasons why you should consider investing in commercial real estate.

Investment 101: Commercial Real Estate

Investing in commercial real estate offers you an opportunity to invest in a hard asset that tends to have more stability than the residential real estate market.

1. Return on Investment

Commercial real estate can provide you with an opportunity to build your personal wealth through investment. If you invest in the right property, you can gain returns that are more favorable than bonds, stocks, or other commodities.

The key to seeing positive returns is to invest in the right commercial real estate. Paying attention to the NCREIF index can help you compare the performance of unleveraged commercial real estate.

2. The Equity

If you time the purchase of your real estate well, then you can take advantage of the rise and fall of commercial real estate prices. Look for opportunities where the market price for a property is lower. Then sell your investment when market prices rise.

You can also use this strategy by investing in property that is run down or in need of updating. After purchase, the property gets a facelift and renovation and then sold. You’re probably familiar with this strategy as “house flipping”.

3. Cash Flow

The majority of commercial real estate investments you will see will offer a steady cash flow. This is through dividends that get distributed monthly, quarterly, or yearly.

There are two options for investment, equity or debt. An equity investment will mean that you have invested in a hard asset with passive minority ownership. Debt investments involve investing in a loan that’s backed by a physical asset as collateral.

4. Tangible Asset

One of the basic rules of investing is to diversify your portfolio. Commercial real estate is a good way to do that by adding hard assets. Unlike investing in a company that can disappear tomorrow, your real estate is a tangible thing you can go and touch if you want to.

Tenants and buildings may come and go, but the actual land will always be there.

5. Depreciation

Many people focus on the appreciation and capital gains of commercial real estate. But there’s another significant benefit, depreciation. This will decrease the accounting value of the physical asset but doesn’t affect the market value.

This lets you use this “loss of value” as a tax benefit to offset your other passive income.

Start Investing in Commercial Real Estate Today

So after this quick investment 101 on commercial real estate, how diverse is your portfolio? Could it use an injection of hard assets?

Including commercial real estate in your investment portfolio can give you a boost in equity and returns. It can also give you a steady flow of cash while also allowing you to claim depreciation on your taxes.