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10 Things You Should Know About Commercial Real Estate Investing in 2023

Investing in commercial real estate can be a great option for a real estate investor looking to tap into a growing, long-term, and potentially lucrative industry. Real estate investments offer the opportunity to gain access to a great new pool of clients, grow your wealth, and expand your portfolio. But success in commercial and industrial real estate investing takes a different type of preparation than residential real estate. 

Let’s talk about ten things you must know before investing.

There are several other things you must consider and be prepared to deal with when you start investing in real estate to be a successful investor in the market going into 2023 and beyond. 

1. It Takes Patience

Many real estate investors making money in residential real estate could buy and sell properties and make a handsome profit quickly. With commercial real estate, the sales cycles and transactions, from property appraisal to closing costs, tend to be longer. A real estate investor must be patient and vigilant of past performance and the subtle changes in the current market demand. 

However, several indicators point to strong growth in demand for commercial real estate sales and rental properties over the next ten years. Investors who are prepared, patient, and focused on commercial properties can reap great internal rates of 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 increasing consumer demand cost-effectively by keeping conveniently located warehouse shelves stocked to quickly meet e-commerce service demands. Online retailers need three times the distribution space of traditional retailers.

3. More Lucrative Tenants

When you manage properties, securing tenants for your commercial properties tends to be more challenging than for residential properties. Business owners typically have specific spacing demands, so finding the right match is difficult. However, once you find tenants for your commercial investment property, you tend to have them for a much longer and at a much higher monthly 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 investment property, you may have the cash flow benefit of having one lucrative tenant for decades.

4. Commercial Rental Property Returns And NOI

While the returns on residential investment properties typically average 4% to 5% a year, commercial real estate properties provide much bigger returns. Calculating the net operating income (NOI) a commercial property generates enables you to analyze the profitability of its rental property’s income. 

NOI serves as a valuation method that determines how income-producing a commercial property is. Beyond rental income, commercial property can also generate significant revenue from parking and service fees. It’s a worthwhile investment that continues to pay larger returns.

5. Historically Low Inflation And Interest Rates

Now is a great time for people interested in investing in commercial property. With rates of inflation high and interest rates at historic lows, investing in real estate will give you chance to get much better value for your money. Plus, business owners looking for new business locations have lots of choices in today’s thriving real estate market. 

Getting mortgages with good mortgage payments 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, you can invest in the future of commercial real estate. You can invest in all types of commercial property. It includes hotels, casinos, storage spaces, healthcare facilities, office buildings, industrial warehouses, retail stores, and 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 they invest in the right commercial investment property. This has the potential to help you build up your long-term generational wealth. If you want to make more money, invest in a commercial real estate property.

7. Valuable Tax Benefits

Another reason to invest in commercial property is the valuable tax benefits you can get with your real estate investments. After you have started investing, you can 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 can avoid paying capital gains taxes if and when you sell your commercial real estate property. You will have to “exchange” up to 200% of 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.

Learn more about tax on commercial property sales.

8. A Lot Less Competition

It’s much easier to find lucrative commercial property in which to invest. So if you are interested in getting a very valuable property at an affordable price, now is a great time to invest. Real estate investments is a great way to diversify your investment portfolio, and the timing is just right for it.

Investing in residential real estate is much more competitive than investing in commercial property. Many more investors bid against each other to purchase residential properties. 

9. A Lot Less Turnover

When you invest in commercial real estate, there is much less tenant turnover. When businesses sign a lease for rental properties, it tends to be for at least three years. In many cases, they sign 5-year leases.

The real estate investor is guaranteed to have their rental property rented and generate rental income for several years. That’s significantly different from residential properties where most tenants sign one year leases. 

This reduction in the turnover in tenants in commercial properties eliminates hassles and keeps the cost of acquiring tenants down. This is a major reason investors prefer commercial real estate properties.

10. Lower Property Maintenance Cost

When you invest in commercial properties, the tenant takes care of the cost to maintain, upkeep, and improve the property. Many pieces of commercial operation use what is called triple net leases. In these types of leases, most property-related expenses tend to fall on the shoulders of the tenants. They are responsible for property taxes, insurance, maintenance, and utilities. 

Plus, with a rental property, commercial tenants are usually much more invested in keeping up the property. Since they are a business marketing its image to the clients, they tend to be more dedicated to ensuring its building is in good repair. Businesses sometimes make property improvements that increase their value over time.

Research And Prepare

If you want to take advantage of the opportunity to make money investing 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, creating an opportunity for you to explore and grow financially from access to industrial real estate investing. 

With interest rates at historic lows, many entrepreneurs are poised to open new companies. In 2021 and beyond, it can be the right time 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.

About The Author

Jesse Shemesh

With a wealth of experience in nurturing diverse commercial real estate investment portfolios across multiple markets, I actively engage in the development and execution of deals spanning all asset classes. My expertise lies in collaborating with strategic partners, including corporate real estate professionals, fund managers, developers, and investors, to source, identify, and entitle opportunities. At Point Acquisitions, we take pride in our unique, proprietary platform that specializes in property acquisitions, generating a steady stream of organic deal flow that sets us apart from the competition. As a seasoned professional in the real estate industry, I am dedicated to creating lasting partnerships and delivering exceptional results for all stakeholders.

Disclaimer

Please note that Point Acquisitions is not a tax expert or tax advisor. The information on our blogs and pages is for general informational purposes only and should not be relied upon as legal, tax, or accounting advice. Any information provided does not constitute professional advice or create an attorney-client or any other professional relationship. We recommend that you consult with your tax advisor or seek professional advice before making any decisions based on the information provided on our blogs and pages. Point Acquisitions is not responsible for any actions taken based on the information provided on our blogs and pages.

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