When many entrepreneurs think of a well-diversified portfolio, they tend to only think in terms of stocks and bonds or even mutual funds. However, what they might not realize is a truly diverse portfolio will not only have these components but may also include assets such as commercial real estate property. But what exactly are the advantages of investing in commercial real estate, and how can investors find the right properties to invest in? Let’s take a look.
The Advantages of Investing in Real Estate
For many investors, real estate is an attractive investment because it is a tangible asset. It’s an investment they can see and touch, which makes it very lucrative for investors as they can learn more about its size, condition, and other factors that may affect their return on investment. For many people, it’s a significant reassurance that they spent their money wisely.
With commercial real estate, it’s more common than not for these assets to provide solid, predictable returns over a longer period of time. By getting involved in the real estate market, investors get familiar with current and predicted trends in the area around the property to ensure they optimize their earnings. This can be accomplished for example, by leasing the property and charging rent to tenants or through appreciation of the property over time.
Additionally, there are some tax advantages to commercial real estate that stocks and bonds can’t provide. For instance, when investors put money in stocks and bonds, they have to put aside a portion of earnings to pay capital gains. With commercial real estate, there are several ways to reduce tax outlays. If you’ve purchased a property in a booming area, its value will rise over time. But you can ensure optimal Return on Investment (ROI) by depreciating the value over time, which will help you reduce yearly taxable income. Very few investments provide this benefit.
How to Invest in Commercial Real Estate
A common way to invest in commercial real estate is by purchasing shares in a Real Estate Investment Trust (REIT). A REIT is a company that owns, operates, or finances income-producing real estate. They will collect rent from their tenants and then pay its shareholders in the form of dividends. In turn, you pay out the tax on the dividends you receive.
Another way you can invest in property is through crowdfunding. This allows investors to select individual projects to fund and expand on their investment portfolios. As an investor, you would be able to browse lists of curated opportunities and choose which properties you feel comfortable investing in.
When investing in commercial real estate properties, it’s important to evaluate each prospective investment. Consider the following:
- Location: Examine the neighborhood, the property’s visibility, freeway access, daily traffic, and accessibility for clients
- Physical Condition: You’ll want to know the quality of your investment. Never assume everything is in working order. Inspect the roof, mechanical systems, plumbing, and structural integrity of the building
- Projected Growth: As mentioned before, getting acquainted with the real estate market and forecasted trends will help you make wise property investments. It’s vital to choose a location where demographics are stable or growing, and where businesses are moving into the area
- Flexibility: As an investor, you need to have a back-up plan. You should invest in real estate that provides you with the ability to adapt to unforeseen situations, such as when a tenant defaults, the surrounding area changes, or something doesn’t go as planned
Plaza Companies Can Help You Find The Right Commercial Real Estate Property
With nearly 40 years of experience, Plaza Companies has been a leader in the development, acquisition, management, and leasing of high-quality real estate. Our portfolio includes everything from mixed-use, office, medical office, senior living, and research properties in Arizona. Contact us today to learn how we can assist you in your real estate needs.