A lot of people limit their scope of investment when they do not venture beyond residential properties. That is why they tend to miss out on potential income opportunities that are far better than residential property investments. Yes, we are talking about the advantages of commercial real estate investments.
Before we begin, it would be wise to define that commercial real estate properties refer to those properties that are particularly meant for business or multifamily needs, and it is supposed to offer workspace, storage, retail, medical, or living space. Today, commercial real estate property investments are made by many people because the returns are higher compared to their counterparts. In recent times, people are investing in commercial properties by leasing them to tenants so that they can conduct business. The lease duration can vary from a minimum of 6 months to a maximum of 30 years or more. It actually depends on what the tenant and the landlord agree upon. A lease can include clauses of increasing the rent annually; according to the lease agreement. Such commercial real estate generally includes office spaces, shops in shopping malls, restaurants, hotels and others.
Advantages of Commercial Real Estate Investments
- Attractive Leasing Rates
The main benefit of commercial real estate is the tempting lease rates. In regions where land or law limits new construction amounts, commercial property owners can still enjoy substantial returns as well as considerable monthly cash flows.
- Cash Flow Stability
Owners of commercial real estate enjoy more profit because of the extended lease contracts with the tenants, something which does not happen in residential real estate. As a result of the long lease length, the property holders enjoy a steady cash flow in a stable and continuous manner, given that the tenants occupy the building.
- Exceptional Capital Appreciation
Besides providing a stable source of income, commercial properties also maintain the potential for capital appreciation, given the property is taken care of and kept up-to-date.
- Less Risk
The amount of risk is much less in commercial real estate, especially when it comes to multiple-occupancy buildings. Risk of income loss is less because other occupants will be still contributing to cover their operational expenses. It is something that is not possible in single residential properties which could result in a hundred percent income loss.
- Security advantage
Compared to bonds, stocks and other kinds of investments, commercial properties ensure value in both land and building improvements. In other words, its value increases with time. Moreover, building additional structures increases the value of the property to a great extent.
Now, if you are wondering about taxes, then we should be thankful that the Internal Revenue Service offers tax incentives for these kinds of properties. Since the maintenance cost of these properties is not cheap, tax incentives act as a relief to the owners.
For more information regarding commercial real estate investments, contact Wealth BCI today.