Most new real estate investors shy away from commercial ventures because they find the prospect a little too intimidating. While there might be a slightly bigger learning curve involved, taking this path can lead to a more rewarding experience. Those new to real estate investments may be surprised to learn just what benefits are involved in investing in commercial real estate.
Earn More Income
Compared to a residential multi-family home, commercial real estate, such as an office or retail space, can provide a significantly higher income potential. Even compared to high-performance stocks that may earn you an annual 2% to 3% return, investing in commercial property can result in a 5% to 15% return. Of course, your income potential will depend on the number of tenants, but, overall, commercial real estate offers the highest income potential.
You Can Build Equity Faster
By leveraging your investments, you can purchase more commercial properties within a shorter time frame. This is done by making a small down payment on the commercial property and financing the remainder of the purchase price. Since the lender can rely on the income potential of the property, they’re more likely to approve loans on commercial real estate. You can use this strategy to invest in several commercial properties within a shorter time frame, growing your equity faster than you would in investing in residential real estate.
There’s Less Risk
A commercial property will have many more tenants than a typical multi-family residence, so losing a tenant will have a lower impact on your income. You’ll be able to use the income generated from the rental payments from the remaining tenants to cover the difference. Additionally, commercial tenants are often expected to pay for the expenses of maintaining the property. They may have to cover the costs associated with maintaining common areas, taxes, and other building expenses.
Protect Your Investments
You’ll have more security in protecting your investments in commercial real estate. In addition to the land, which has value in itself, you’ll own the property on the land. As you develop that property to suit your tenants, any improvements you make will boost the property’s market value. Even when you lose a tenant, you still have the value and equity in that property.
Before you commit to residential real estate investments, it may be worthwhile to learn more about commercial real estate. You can make use of resources that will enable you to invest what you have as a means of getting your foot in the door while enjoying the benefits that commercial real estate investing provides. Giving it a try can result in a more positive experience than you anticipate.
