Should You Invest In Commercial Real Estate?

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On November 8th, 2018

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Should You Invest In Commercial Real Estate?

When referring to commercial properties available for investing, there are a number of types of real estate involved. Office buildings, industrial buildings and warehouses, retail space, and apartment buildings all fall under the umbrella term of commercial real estate. The wide range of property types gives just a small impression of the number of opportunities available to investors. Learning more about the advantages of investing in commercial properties can help you decide if this is the right path for you.
Higher Income Potential
When comparing a commercial property against residential investments, it's interesting to see that commercial properties offer the highest ROI. The yearly return on a commercial property is typically 6-12% of the property's purchase price. For residential properties, the ROI can get as high as 4%, but usually is closer to 1-2% of the sale price. This indicates investors can earn more with commercial real estate.
More Reliable Source of Income
In addition to earning more, investing in commercial real estate provides a steady stream of income over a long period of time. While residential properties typically lease for six months to a year, commercial space requires a longer commitment in many cases. Since these types of tenants operate businesses out of the space, you can also charge a higher rental rate.
You Control Appreciation Values
Your property can appreciate over time, if you can make cost-effective improvements to the property. For instance, if smaller stores and cafes are more successful in your area, it may be advisable to divide a larger space up into smaller units. It helps, if you're knowledgeable about market trends and what types of improvements boost the value of the property. If not, you can always consult a real estate professional.
The Property Will Always Be an Asset
Suppose you rent your property out to a tenant, whose business is failing. While that business may be losing money, your property retains its value. In this way, investing in commercial real estate provides you with assets that will always be at your disposal. this means the property represents a more stable investment and offers the possibility of earning higher gains. The property can even be leveraged to allow you the resources to invest in more properties.
Benefit from Tax Incentives
For other types of investments, tax time represents a frustration and a burden, but that doesn't have to be the case with real estate investing. Particularly where commercial real estate is concerned, the IRS offers tax incentives to investors. These incentives include deductions for mortgage interest and property depreciation. When you do begin investing in real estate, it's wise to work with a tax professional to ensure you take advantage of all of the available tax incentives.
These are just a few reasons that investing in commercial properties is an attractive opportunity. While there are risks with any type of investment, commercial properties present the lowest risks and offer the greatest potential for profit. Investing in commercial properties offers one of the most promising ways to grow your wealth, even when compared to investing in residential properties.

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