The Most Profitable Types Of Commercial Real Estate Investments
Investments In Commercial Real Estate
Although the idea of investing, in general, has been a popular trend among the majority of individuals lately, one specific sector has become increasingly popular for a number of reasons; commercial real estate.
Commercial properties are different from residential subdivision properties, as the term commercial refers to land for sale or buildings intended to generate a profit for an investor or owner. There are two ways in which commercial estate can generate profit, either through capital gain or rental income.
Some examples of commercial properties include hotels, shopping malls, office buildings, retail stores, medical offices, warehouses, multi-family housing buildings, garages, and even farmland. Essentially, commercial properties are exclusively for business-related purposes where they provide a workspace rather than a space to live.
As an investor or an owner of a commercial building, you are provided with numerous advantages that other sectors of the industry simply do not have.
Longer Leasing Terms
As the investor, you typically own the building and rent it out, ultimately collecting rent checks for each month that the building is occupied.
Additionally, most commercial building leases range anywhere from 1 to 10 years, while residential building leases generally range from a much lower duration. The annual leases for commercial buildings are regularly quoted per square foot per year. In the majority of cases, the bigger the building the longer the lease term. Some investors manage their property leases themselves, while others hire a property manager to handle the oversight of the property.
Perhaps the greatest advantage offered by commercial property is that they simply produce income. Since you as an investor are not required to actually sell the asset or property in order to generate income, you will be constantly obtaining cash flow even through difficult times such as recessions.
This is not the case when it comes to investing in stocks for an example, as they do not pay out dividends or regular cash distributions. With a stock, the only way to profit from it is by selling the stock. With commercial property, a steady income is achieved and sustained through the cash flow of a property, even if you do not sell a home.
This vital trait alone is enough for numerous investors to realize the significance of investing in commercial properties. Furthermore, a traditional property investor who buys a home, fixes and flips it, only makes a profit when they sell that home, unlike a commercial property. Lastly, commercial properties have been known to return the most amount of money on the investment, according to statistics.
Their Demand is Increasing
Although many individuals believe that brick and mortar stores are a thing of the past, some industries are only able to operate through those physical type stores. Additionally, with the increasing accessibility and affordability of starting a small business, those future business owners will need a physical place to operate.
Consequently, the demand for leasing spaces or properties has increased since 2010. This provides another significant advantage for commercial property investors, as they can set their own leasing prices in association with the rising demand.
Depending on the popularity of a particular location, the value of commercial property can significantly increase over time. Statistically, commercial properties have shown the greatest amount of inflation out of all investment options.
Essentially, if the rent for a commercial property doubles, then the value of that property will also double. Furthermore, inflation can also be influenced by the cost of building a new property. Consequently, the values of pre-existing properties also increase in order to match the new properties.
This is a substantial factor and advantage that only a few savvy commercial property investors are aware of. The commercial real estate market has been deemed as the most profitable form of property investing ever since the founding of the United States.
The reasons as to why commercial property investing are so attractive is contributed to the fact that they simply have a track record of impressive success, offer greater security, as well as higher returns. Additionally, it is no surprise that over 48% of American millionaires have made their fortune from investing in properties, especially commercial properties.
For more information about buying an investment property, contact a local trusted Realtor for assistance.