A Commercial Real Estate (CRE) is a property that you attain and manage for commercial use rather than residential use. This kind of property includes retail buildings, industrial buildings, offices, warehouses, and apartments, providing you with an excellent investment profile. As Louis Glickman says: “The best investment on earth is earth.”
WHY INVEST IN COMMERCIAL REAL ESTATE?
Commercial Real Estate investment is worthy due to its potential and high performance in building your portfolio. Manulife Asset Management conducted a study on CRE performance for a period of 25 years and found that commercial estate remained the most stable investment during the economic crisis. Moreover, rental agreements and dynamic markets also contribute to the stability of investment.
Refinancing is limited to people, while investors can have access to get another credit to cover a previous one. When the rate of interest falls down, investors go to banks to take out the credit and pay for the previous credit. In this way, they pay less credit than they had to. They keep a large amount of rental money to their account. Let me explain it through an example, and you found a market where a devalued property is of worth $100,000. You are ready to buy it for $80,000, while in reality you only have $20,000. So you would borrow $60,000 from a bank. Instead of selling it, you can invest $5000 in fixing up the building to keep it on rent. Now comes the refinancing phase. You will go to a different bank, and they will refinance you by checking up on your rental property. You will pay the previous bank their credit, and finally, you are left with a handsome amount to buy more properties.
Hence, CRE investment is and has always been the go-to investment for multiplying your wealth.
BENEFITS OF CRE INVESTMENT
- INSURANCE OF VALUE
Buy lands! Buy buildings! Yes, the real estate market outplays in keeping its insurance of economic worth. You can have confidence in your property value even with the rise of other buildings. Plus, cost-effective management (internal factor) and supply and demand price imbalances (external factor) can be desirable for improved value.
If you move a bit from the central city, you will be able to find lands and buildings at lower rates. The property will make its worth itself after some years since the population is increasing continuously and hence the demand for a property.
- INCREASED DEMAND
Since the population is continuously increasing, the need for places as residence and offices is growing as well. Consequently, it increases the demand and value of a property. “The average home, in the world, appreciates in value by 3% per year.” For the last ten years, on average, real estate has appreciated by 6% per year, making the value double effectively every ten years or so. Thereupon, the real estate investment maintains its value for you since the demand is continually increasing.
Forced appreciation gears up the property value to reach its heights through personal investments and efforts, such as interior designing, technology set up, solar panels addition, and a fresh coat of paint.
This is the reason for the existence of the house-flipping market. Investors look for properties that are in poor condition or devalued. They apply forced appreciation on the property and sell it for financial gains.
- TAX FAVOURS
The government favours real estate investors, and they are well-treated in terms of tax. They pay less tax than the other citizens. This is because they provide housing spaces for the population and develop the lands. For that, they are also called “developers.”
Here are some of the tax relaxations that the government favours to developers.
- Depreciation deduction from income
- Mortgage interest tax deduction from income
- Cost of maintenance and repairs
- Cost of rental property management and legal consultations with other services
- Cost of travels associated with the property
- Tax deductions on property
So, real estate investors are always privileged as compared to small business people or other citizens.
- PASSIVE SOURCE OF INCOME
Earning passive incomes from properties is one the best way to keep your cash inflow. Own an apartment and rent it out, and you can live the rest of your life depending on that rent only.
People need central housing locations for convenient conveyance. They are willing to pay high rents because in another case of living on the edge of the city would waste their 2/3 hours every day, and would cost them transport charges on a daily basis.
Commercial Real Estate works as a drilling rig to make money day and night. Warren Buffet, the most significant investor of all time, gives a lesson by saying: “If you don’t find a way to make money while you sleep, you will work for money until you die.”
- NO RISKS
The best nature of this kind of investment is that it involves almost zero risks. In multiple tenancies, risk of income loss is very low, because tenants are there to contribute to cover the cost. If you compare multiple tenancy building to a single tenancy residence, you will get the idea of the degree of risks and profit in both kinds of investments.
Real estate investors are not afraid of market cycles. Instead, they love it! They are excited when the market rate falls, and property rates go down. You know why? Because it is their time to buy at cheap rates. While people out there would be freaking out for their loss, and the economy would be struggling to survive. That’s the perfect time for investors and builders to buy as much as they can. For example, if you buy a car that is worth $300,000 in $100,000 only, all you have to do is keep the car for a couple of years in your garage, and you can sell it for twice that amount if you want to, isn’t a good deal? In the same way, commercial real estate investors enjoy the economy fluctuation.