A substantial investment portfolio includes commercial real estate. This type of investment remains as one of the best in providing excellent risk/reward profile to investors. Let’s review five reasons why investing in commercial real estate should be considered for growing wealth.
EXCEPTIONAL APPRECIATION OF ASSET VALUE
Compared to other investments, commercial real estate has historically shown outstanding appreciation in value. Real estate can increase in value due to internal factors such as renovations and cost-effective improvements. Also, due to external factors such as supply and demand in the market.
TAX ADVANTAGES
Property owners in the United States benefit from the real estate tax code in place.
Mortgage interest and depreciation deductions can affect a large portion of a property owner’s stream of income. It is advised to consult a tax professional to understand all of the tax advantages received from owning commercial real estate.
SECURE INVESTMENT
Commercial real estate is considered a hard asset, meaning it has a valid inherent value. The land the property sits on has value, as well as the structure built there. Choosing a quality location and asset creates security to investors in knowing that the property will earn income no matter of the existing tenant. This is where commercial real estate proves to be a stable investment compared to the stock market, which dramatically fluctuates.
LEVERAGE AND INCREASE CURRENT CASH-FLOW
An investor can multiply net spendable cash by borrowing at a lower cost than the property returns to them. For example, if person A loans person B $10 and asks for $12 back, a two-dollar interest fee is applied. Then, if person B takes those $10 and lends it at a $3 interest fee, without any additional investment, they can pay back the $12 they borrowed from person A, and still make one dollar in profit. That’s positive leverage, and it is commonly practiced with commercial real estate.
SIGNIFICANT INCOME AND SPENDABLE CASH
A huge benefit of commercial real estate is that assets are usually secured by leases. These provide a regular stream of income. Compared to stock dividends, commercial real estate dividends are significantly greater.
It is recommended that the benefits of owning commercial real estate are carefully considered as well as the challenges one might face. This type of investment is full of advantages that allow an investor to grow the value of their investment portfolio securely.
