The Benefits of Investing in Commercial Real Estate
Author: Joseph Gozlan, Eureka Business Group | Published: 02/15/2023
When it comes to investing, there are many different options available, each with its own set of benefits and drawbacks. One area that is often overlooked by investors is commercial real estate. While investing in commercial real estate may seem intimidating, it can actually offer a number of benefits that are difficult to find in other types of investments. In this blog post, we’ll explore some of the benefits of investing in commercial real estate and why you might want to consider it as part of your investment portfolio.
One of the most significant benefits of investing in commercial real estate is the steady income it can provide. Commercial real estate properties are often leased out to businesses, and these leases typically last for several years. This means that investors can count on a regular stream of income from rent payments, making it an excellent option for those who are looking for a stable and reliable source of income.
In addition, many commercial real estate leases include clauses that tie rent increases to inflation, which means that the income stream from the property can increase over time. This can help investors to keep pace with inflation and maintain the value of their investment.
Another advantage of investing in commercial real estate is the potential for long-term appreciation. Over time, commercial real estate properties tend to increase in value as the surrounding area develops and property values rise. This means that investors can benefit from both the regular income from rent payments and the long-term appreciation of the property itself.
In addition, commercial real estate can be a good hedge against inflation. As the cost of living rises, so do property values, which means that the value of the property can increase even if the investor does not make any improvements to the property.
Another benefit of investing in commercial real estate is that it can provide diversification for your investment portfolio. While many investors focus on stocks and bonds, investing in commercial real estate can provide a way to spread your investment risk across multiple asset classes.
This is particularly true when it comes to commercial real estate investment trusts (REITs). REITs are companies that own and operate commercial real estate properties, and they offer investors the opportunity to invest in real estate without having to purchase a physical property themselves. By investing in a REIT, investors can benefit from the regular income and long-term appreciation of commercial real estate without having to take on the risk and responsibility of managing a property themselves.
Investing in commercial real estate can also provide a number of tax benefits for investors. One of the most significant tax benefits of commercial real estate is depreciation. Commercial real estate is subject to a tax deduction for depreciation, which means that investors can deduct a portion of the cost of the property from their taxable income each year. This can help to reduce the amount of taxes that investors owe and can increase the overall return on investment.
In addition, commercial real estate investors can also benefit from 1031 exchanges. A 1031 exchange allows investors to defer capital gains taxes on the sale of a property if the proceeds are reinvested in another like-kind property. This can be a valuable tool for investors who are looking to sell a property and reinvest the proceeds in a more lucrative investment opportunity.
As we mentioned earlier, investing in commercial real estate can be a good hedge against inflation. This is because as the cost of living rises, so do property values. As property values increase, so does the income that the property generates, which means that investors can benefit from both the regular income and the appreciation of the property.
In addition, commercial real estate is a tangible asset that provides investors with a sense of security. Unlike stocks and bonds, which can be volatile and subject to rapid price swings, commercial real estate provides a tangible asset that can be seen and touched. This can help.