Commercial real estate investing can be quite a lucrative endeavor for those who understand the industry, but it can also be intimidating for those who are unfamiliar with the process. For those looking to break into the world of commercial real estate investing, it is important to understand the different types of investments, the associated risks, and the potential rewards.
Potential for High Returns Over Time
One of the greatest advantages of commercial real estate investing is that it can provide a steady stream of income over time. By investing in commercial properties, investors can benefit from the appreciation of property values, as well as the cash flow generated by tenants. It’s not like other businesses that require working capital and can take years to generate profits. With proper management, commercial real estate investments can generate high returns over time. Eventually, these returns can help to build wealth and create financial security.
In addition to the returns that can be generated through commercial real estate investing, there are also a number of tax advantages. Because commercial properties are typically held as investments, investors can benefit from deductions related to depreciation and other expenses. These deductions can help reduce the overall tax burden and increase returns.
Commercial real estate investing can also provide investors with an opportunity to diversify their portfolios. By investing in different types of commercial properties, investors can spread out their risk and minimize losses in the event of a downturn in the market. This diversification can help to protect investors from significant losses and can help to maximize long-term returns.
An Escape from Correlated Returns
Commercial real estate investing can provide investors with an escape from the highly correlated returns that are associated with the stock market and other traditional investments. By diversifying their portfolios and investing in different types of commercial properties, investors can reduce their exposure to the overall market and benefit from returns that are not correlated with other investments. This can help to reduce overall portfolio volatility and help protect investors from losses during times of economic uncertainty.
Potential for Growth
Commercial real estate investments can offer investors the potential for growth in the form of rental income, property appreciation, and increased value. Additionally, commercial real estate investing can provide investors with a great opportunity to diversify their portfolios and spread their risk. Even if you had to take out a commercial real estate loan to finance the purchase of a property, you could still benefit from the potential for growth in the form of rental income, property appreciation, and increased value.
Finally, commercial real estate investing is usually considered a long-term investment. While some investors may be tempted to seek out quick flips or other short-term investments, commercial real estate investing is typically best suited for those looking to build wealth over the long term. As such, it is important to ensure that investors have the patience and commitment to stick with their investments over time.
Commercial Real Estate Financing
Financing is an important part of Commercial Real Estate investing. When considering the size of an investment it is important to understand your financing options. Light industrial, office and retail properties will require up to 35% down payment. Residential real estate, both single family and multifamily, will require 20% to 30% down payment. It is also important to consider the Net Income of the property to ensure that the free cash flow of the property can sufficiently cover the monthly payment. In most cases personal guarantees will be required. However, non-recourse loan options are also available.
Commercial real estate investing has the potential to offer investors a variety of benefits. The long-term potential for capital growth, the potential for steady income, and the diversification of an investor’s portfolio are all compelling reasons to consider commercial real estate investments. Therefore, it is worth considering commercial real estate investing, and investors should weigh the pros and cons before making any investment decisions.
Ready to take the plunge and invest in commercial real estate? You’ll need help from a reliable and experienced financial consultant to help guide you through the process. 504 Advisors is here to do just that and more. We function as consultants and advisors for our clients throughout the entire SBA and real estate financing process. We’re here to make sure you get the right financing for your investment. Contact us today to learn more about how we can help you!