Commercial property investing is one of the more appealing opportunities that people consider and for many good reasons. Throughout history, these ventures have generally offered greater stability and less overall risk than the stock market, making commercial property investing quite desirable.
Yet this is not the only reason why commercial property investing opportunities have become so popular today. Consider the reasons discussed below as to why this is a preferred venture by both experienced and novice investors alike.
1. High Yields
One primary reason why many people prefer commercial property investing is that it often delivers higher yields than many stocks. The National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index is the benchmark for measuring the performance of investment real estate over time. It confirmed a 2015 annual return of 12.7% and a 15-year average return of 8.8%. Both of these rates have been considerably higher than those reported by Dow 30, S&P 500, and Russell 3000.
2. Steady Cash Flow
Because these properties are continually bringing in rent, commercial property investing opportunities produce a steady cash flow. Whether it is paid out as earnings or reinvested, there is always money coming in which can be used in a number of ways.
Some may decide to pay down their loan to increase property equity, then borrow against the equity to obtain more real estate. Others may choose equity or debt investments. In any of these situations, the positive cash flow from leased properties makes this possible.
3. Mortgage Paydown
Commercial property investing is unique from other ventures because real estate can be financed with loans, then slowly paid off as cash begins to flow. This method of principal paydown gradually generates more and more equity in owned real estate, which can then be used to leverage additional properties. Paying down mortgages on any real estate reduces risk while increasing returns. When the loan is paid off, all income is purely a return.
4. Tangible Property
Because real estate is something physical that can actually be touched as opposed to stock shares in a company that are intangible, it is a great addition to any venture portfolio. Commercial property investing opportunities are frequently sought as a way to diversify portfolios by balancing out hard and soft assets.
5. Appreciation and Depreciation
Investing in commercial property offers benefits from both appreciation and depreciation. Venturists can claim certain tax benefits for the depreciation of physical buildings and structures on their site, while retaining the full market value of the land itself. Additionally, investors may opt to sell real estate when it appreciates in value, increasing earnings in this manner.
While the reasons above are just some of the positives in commercial property investing, it is easy to see why it is so appealing. Of course, success depends on finding the most lucrative commercial property investing opportunities; generally, there is a wide protective margin with commercial real estate that does not exist with stocks, bonds, and similar ventures. There is a lot to be learned about commercial property investing - and also much to be gained!