Investing in commercial real estate can be a great option for investors who are looking to tap into a growing, long-term, and potentially lucrative industry. It offers the opportunity to gain access to a great new pool of clients, grow your wealth, and expand your portfolio. But to be successful in commercial and industrial real estate investing takes a different type of preparation than with residential real estate.
There are several other things you must consider and be prepared to deal with in order to be a successful investor in the commercial real estate market going into 2021 and beyond.
Let’s talk about 10 things you must know before investing.
1. It Takes Patience
Many real estate investors who made their money in residential real estate were able to
to quickly buy and sell properties and make a handsome profit. With commercial real estate the sales cycles and transactions tend to be longer. Investors must be patient and stay vigilant for the subtle changes in market demand.
However, there are several indicators that point to strong growth in demand for commercial real estate sale and rental over the next ten years. Investors who are prepared, patient and focused on commercial properties have a chance to reap great returns on their investments.
2. Invest In On-Demand Warehouses
One of the growing trends in commercial properties is investing in on-demand warehouses in convenient locations and renting different size spaces for short and long durations of time. In Washington DC, e-commerce companies and online retailers consistently need
over 1.2 million square feet of on-demand warehouse space to support their sales and distribution of their products. They make up about 20% of Washington DC’s new on-demand warehouse leasing tenants.
On-demand warehouse space is a growing part of retailers’ supply-chain strategies for meeting increasing consumer demand cost-effectively by keeping conveniently located warehouse shelves stocked to quickly meet e-commerce service demands. Online retailers need 3 times the distribution space of traditional retailers.
3. Commercial Real Estate Has More Lucrative Tenants
Securing tenants for your commercial properties tends to be more challenging than for residential properties. Business owners typically have specific spacing demands, so being able to find the right match is not easy. However, once you find tenants for your commercial property, you tend to have them for a much longer period of time and at a much higher rent.
Once business owners find a home that meets the specific needs of their growing business, they avoid changing locations at all costs. When you rent your commercial property, you may have the benefit of having one lucrative tenant for decades.
4. Commercial Rental Returns And NOI
While the returns on residential investment properties typically average 4% to 5% a year, commercial properties provide much bigger returns. Calculating the net operating income (NOI) a commercial property generates enables you to analyze the profitability of its rental income.
NOI serves as a valuation method that determines just how income-producing a commercial property is. Beyond rent, commercial property can also generate significant revenue from parking as well as services fees. It’s a worthwhile investment that continues to pay larger returns.
5. Historically Low Inflation And Interest Rates
For people interested in investing in commercial property, now is a great time. With rates of inflation high and interest rates at historic lows, real estate investors have a chance to get much better value for their money. Plus, business owners looking for new business locations have lots of choices in today’s thriving real estate market.
Getting mortgages to purchase investment commercial properties is a simpler process today than it has been in years. The rigid economic downturn mortgage rules for commercial properties have gradually relaxed and entrepreneurs and desirable commercial tenants are looking for commercial space to lease.
6. Build Long-Term Generational Wealth
If you want to build long-term generational wealth, invest in commercial property. You can invest in all types of commercial property. It includes hotels, casinos, storage spaces, healthcare facilities, office buildings, industrial warehouses, retail stores or even restaurants. It’s a smart place to invest because of its high income potential.
Commercial buildings can provide investors with thousands of dollars a month in rent if you invest in the right commercial property. This has the potential to help you build up your long-term generational wealth. If you want to make more money, invest in commercial property.
7. Valuable Tax Benefits
Another reason to invest in commercial property is because of all the valuable tax benefits you can get with your real estate investments. You get to claim depreciation on your tax returns. You can deduct some of the commercial property’s value from the taxable income you declare each year. This will reduce your total tax burden by a huge amount.
The advent of 1031 exchanges means you are also able to avoid paying capital gains taxes if and when you sell your commercial property. You will simply have to “exchange” the profits you make for another asset or property when you do so. Your tax advisor can show you the nuances of using this strategy.
8. A Lot Less Competition
Investing in residential real estate is much more competitive than when you invest in commercial property. Many more investors bid against each other to purchase residential properties.
It’s a lot easier to find lucrative commercial property in which to invest. So if you are interested in getting very valuable property at an affordable price, now is a great time to invest in commercial real estate. This is the right time to diversify your investment portfolio.
9. A Lot Less Turnover
When you invest in commercial real estate, there is much less tenant turnover. When businesses sign a lease, it tends to be for at least 3 years. In many cases they sign 5 year leases. So the investor is guaranteed to have their commercial property rented and generate income for several years at a time. That’s significantly different from residential properties where most tenants sign one year leases.
This reduction in the turn over in tenants in commercial properties eliminates hassles and keeps the cost of acquiring tenants down. This is a major reason investors prefer commercial properties.
10. Lower Property Maintenance Cost
When you invest in commercial properties, the tenant tends to take care of the cost to maintain, upkeep and improve the property. Many pieces of commercial operate use what is called triple net leases. In these types of leases most of the property-related expenses tend to fall on the shoulders of the tenants. They are responsible for taxes, insurance, maintenance, as well as utilities.
Plus, commercial tenants are usually much more invested when it comes to keeping up the property. Since they are a business that is marketing their image to the clients, they tend to be more dedicated to making sure to keep their building in good repair. Businesses sometimes make improvements to the property that increases its property value over time.
Research And Prepare
If you want to be able to take advantage of the opportunity to make money investing in commercial real estate in 2021 and beyond, you have to do your research and prepare yourself. It is an investment that can transform your quality of life and benefit you and your loved ones for generations. All of the forces are aligned and it has created an opportunity for you to explore and grow financially from access to industrial real estate investing.
With the interest rates at historical lows and a growing number of entrepreneurs are poised to open new companies. In 2021 and beyond it can be the right time for you to expand your investment portfolio to include commercial real estate.
Call A Professional Investment Company
If you are serious about investing in commercial property, call Point Acquisitions. We are a professional investment company with the knowledge, staffing, experience and expertise needed to provide you with the guidance you need to be successful when you venture into industrial real estate investing.