There’s a reason why Chinese investors have spent $21.1 billion on commercial real estate globally, about $5.9 billion of which has been invested in the United States. When done correctly, renting out commercial buildings will consistently provide larger yearly returns than many other assets.
So, if you’re searching for a strategy to diversify your portfolio, here are four reasons to consider investing in commercial real estate:
1. Commercial real estate generates more cash flow.
Commercial real estate often has a larger return than residential buildings, both in terms of per square foot and original investment. This is particularly true if you opt to lease or rent a multi-unit commercial property,
Earning capacity. According to Cricket Realty Advisors president Matt Larson, commercial properties in the correct location may anticipate an annual return of 6% to 12% of the purchase price. This is far more than a single-family rental, which can only anticipate a 1% to 4% yearly return at most.
Stability of cash flow Because commercial real estate leases are often longer than residential leases, it is simpler to estimate cash flow year over year.
2. Commercial properties spread risk.
If you own a commercial property and rent it out to numerous tenants, you have a decreased probability of losing your whole rental revenue in any one month. You may lose one or two renters at a time, but you will still have other tenants contributing to your revenue. In contrast to a single-family home, where your investment income is based on the rent of a single renter.
3. Commercial establishments are open for a restricted number of hours.
Businesses often retain regular business hours. That means they’re only open during the day, and you’re less likely to be contacted in the middle of the night to deal with a repair or a misplaced key, according to Larson. If you have a problem in the evening, you may install an alarm monitoring service that will immediately inform the appropriate authorities.
4. Tenant relationships are more stable.
Legally, the landlord-tenant relationship in commercial real estate is between two companies rather than two persons. This, according to Larson, makes conversations much more professional and courteous. “It’s more of a business-to-business client connection between the landlord and the renter,” he explains.
Do Your Research Before Investing
But don’t expect to get a constant, high return on your investment if you own commercial property. You must do study to discover whether or not a property is a good investment.
What were the existing owners’ vacancy rates?
What is the financial situation of the present tenants?
What do storefront managers like and dislike about doing business with them? Do they intend to renew their leases?
What do renters enjoy about the present administration?
Is there any residential construction going on nearby?
What is the zoning of the property?
Are there any significant stores relocating to the area? (If this is the case, it might indicate that demand for storefronts will increase.)
What is the median income of the population? Is the median income increasing or decreasing? Is it, at the very least, on par with the national average?
If you’re confident in your answers and believe the property’s fundamentals are robust, investing in commercial real estate might be a good addition to your investment portfolio.