Are Commercial Real Estate Properties a Good Investment?
Commercial Real Estate is property used exclusively for business purposes or to provide a workspace rather than a living space. Most often, commercial real estate is leased to tenants to conduct business.Investing in commercial real estate can serve as a hedge against the volatility of the stock market. Investors can make money through property appreciation when they sell, but more returns come from tenants’ rents.
Investors can use direct investments where they become landlords through the ownership of the physical property. People best suited for direct investment in commercial real estate are those who either have a considerable amount of knowledge about the industry or those who can employ firms. Commercial properties are a high risk, high reward field. Real estate investment by such an investor who is likely to be a high net-worth individuals (since commercial real estate investing requires a considerable amount of capital) may expect the return accordingly. The ideal property is in an area with low commercial real estate supply, which may lead to high demand, which in turn will give favorable rental rates. The strength of the area’s local economy also affects the value of the commercial real estate purchase.
Investors may invest in the commercial market indirectly through the ownership of various market securities such as Real Estate Investment Trusts (REITs) exchange-traded funds, or by investing in companies that have stakes in the commercial real estate market, such as banks and realtors.
Advantages of Investing in Commercial Real Estate:
There are many advantages to buy a commercial property. The biggest is income potential. Commercial properties have an annual return of up to 12%, while single family homes generally have an annual return of 4%. Another benefit of investing in commercial real estate is longer leases for most buildings. A residential tenant typically has a one year lease, but a commercial tenant's lease could run up to 10 years or longer. Commercial property owners also benefit from the professional relationships they develop with the business owners who leave their space. These tenants have interest in maintaining and improving the property, so the investment value increases.