As an investor, there are many different opportunities you can invest in. For some, they like to hedge their bets on the stock market. For others, they find investing in the residential real estate market to be best. Those who prefer to invest in non-tangible assets tend to overlook the benefits of buying up commercial real estate.
While stocks and similar investments may fluctuate in value quite frequently, multifamily and commercial real estate is least likely to do so. In fact, data released in 2015 suggests that investors grossed at least $435 billion in sales by renting out their commercial properties. Financial forecasters maintain that this return rate shows that this market is ideal for protecting the investor’s initial inversion of funds.
Another attractive aspect about commercial real estate is its potential to produce desirable returns. The National Council of Real Estate Investment Fiduciaries has found that those who sank their money into properties yielded a 12.7 percent return in 2015. Over the course of 15 years prior to that, investors netted an average yield of 8.8 percent.
While property values may rise and fall over the course of time that an investor owns the property, it’s possible to devise an exit strategy that will maximize capital gain. For residential real estate investors, fixing and flipping properties within less than three years may be the ideal time frame in that market. For commercial investors, that peak may not be reached until after seven years have lapsed.
Commercial real estate investors also experience principal pay down. In this industry, it’s fairly commonplace for landlords to take out 30-year, fully amortized loans. As you begin to pay back that loan as your tenants make rent, you’re able to generate more equity and further approximate a point of exit. At a leverage point of 75 percent, reaching this milestone can net you as much as 25 percent in returns.
As one of the more obvious benefits of investing in commercial real estate, it provides investors with a more diversified investment portfolio. Unlike stocks, a building is a tangible asset. While occupancy levels of multifamily units and the valuation of the building may fluctuate over time, you’re undoubtedly going to feel some comfort in knowing it’s there.
If you’re looking to diversify your assets with a property, then a Melbourne, Florida, commercial real estate attorney can provide guidance as you do.
Source: Crowd Street, “Top 6 Reasons to Invest in Commercial Real Estate,” Ian Formigle, accessed June 30, 2017