7 reasons to Invest in Commercial Real Estate
Investors are looking for yield-generating possibilities and ways to diversify their portfolios further as a result of recent economic trends.
Direct investment in commercial real estate can help you accomplish these objectives while also offering a wide range of additional advantages.
You may find numerous lengthy lists of reasons to invest in commercial real estate online, but we have emphasized the seven that, in light of the current economic scenario, we find to be most compelling.
1. Diversification
Due to its historically low correlation with the stock market, investments in commercial real estate are a logical choice for portfolio diversification.
This low correlation is crucial since it shields your portfolio against severe loss brought on by a single incident.
Additionally, stocks and bonds become more connected during recessions, so having investments in other asset classes helps your portfolio diversify during those times.
Diversification is crucial for reducing your overall risk and reaching your long-term financial objectives, even though it cannot ensure that there won’t be a loss.
2. Income stream
A stabilized real estate asset offers the possibility of long-term capital growth along with steady, day-one rental income for investors.
These rental income sources are frequently utilized by retirees to supplement their principal income sources, which are more volatile or to pay for daily living expenditures.
Some people prefer to reinvest the money in their holdings. The cash flow is frequently less volatile than other investment options because rental
income is normally set out in a lease.
3. Capital preservation
Real assets have obvious, palpable worth, like office buildings. The building’s quality, its location, and the credit of the current tenants—all stable variables—are what ultimately decide this property’s value.
On the other hand, several micro and macroeconomic factors can cause the value of shares in a publicly traded firm to alter significantly
overnight.
Real estate investments are significantly safer than other investment options for those whose top priority is money preservation due to the potential for volatility.
4. Inflation hedge
In the past, rents and property values have risen together with inflation.
Given that these two factors account for the majority of real estate profits, practically every real
estate investment naturally includes an inflationary inflation hedge.
5. Stronger yield potential
Bond markets, which have produced an average return of between 5% and 6% since 1926, are typically the first place investors seek when looking for possibilities with consistent yields.
In contrast, direct investments in commercial real estate can generate average returns of up to 13–14% while still offering many of the same advantages as bonds.
6. Tax advantages
Real estate has traditionally been seen as a tax-beneficial investment strategy.
But now that the Tax Cuts and Jobs Act has recently passed, it’s more exciting than ever.
Investors can now postpone taxes on payouts and obtain deductions like enhanced bonus depreciation if their investments are correctly structured.
7. Potential for capital appreciation
Due in great part to the long-term growth expectations that equities provide, the stock market is where investors most frequently choose to spend their money.
However, investing in commercial real estate can have comparable growth possibilities (with a different set of underlying risk factors).
For instance, by paying attention to economic and demographic trends, investors can buy assets in areas where they anticipate a sharp rise in demand or popularity, which raises property values and promotes rapid capital growth.
If the idea of investing in commercial real estate appeals to you but you’re not sure where to begin, get in touch with us and we’ll work with you to identify the finest possible investment opportunities.