556: Top Advantages of Investing in Commercial Real Estate

September 24, 2021bmanasseroUncategorizedNo comments

SHOW NOTES FOR EPISODE 556: TOP ADVANTAGES OF INVESTING IN COMMERCIAL REAL ESTATE

While investing in real estate is a great idea for all people, investing in commercial real estate could be an even better way to earn money. In today’s podcast, Bill shares some reasons why investing in commercial real estate is a great idea and a great investment opportunity.

Tip of the Week – Always Have a Plan B

New real estate investors are sometimes overly optimistic about their abilities. It’s important to be prepared for unforeseen property repairs, tenants that disappear in the middle of the night, or an overly zealous zoning inspector. Remember that in the investment real estate business cash is king, so it’s critical to use online real estate management software to budget realistically and accurately and to have reserves for when the unexpected happens—because it can, and it will.

Reference: https://www.stessa.com/blog/real-estate-investing-tips-from-experienced-investors/

Top Advantages of Investing in Commercial Real Estate

Investing in real estate is more often than not a great idea. Real estate prices continue to rise year after year. Your investment grows as the property appreciates and allows you to build equity. While investing in real estate is a great idea for all people, investing in commercial real estate could be an even better way to earn money.

Commercial real estate is real estate that is used for business purposes and/or could be real estate with multiple residential units. Whether you plan to run a business or lease the commercial real estate out to other business owners there are great opportunities for savvy investors. Here are some reasons why investing in commercial real estate is a great idea and a great investment opportunity.

#1 Increased Income Potential

When you invest in commercial real estate you will often be leasing out space to business owners, if space is intended for business purposes, or renting out units, if the space is intended for living. When you rent out commercial real estate properties you are often able to charge you tenants more to lease the space than you could charge a family living in a single family home. You are able to charge more because space is typically in higher demand and you know the owners are likely going to earn a profit. Renting and leasing these spaces for more money allows you to put more money in your pocket and have a higher income.

#2 Secure Investment

People choose to invest their money in a variety of different things, including real estate, stocks, bonds, gold, and a variety of other things. Real estate is one of the best investments you can make. Unlike the stock market, which can change by the minute, real estate is fairly consistent and predictable. Annually, around the country, homes on average increase by about five percent each year. This can change depending on the location, but for the most part, you can expect a five percent increase in the value of your home each year. This makes investing in real estate a great opportunity because you can easily project or predict your profits. Your investment is also protected because you do not have to worry about the market crashing and losing all of your money like you would with the stock market. People are always going to need places to live and this makes the housing market stable. This is also true for commercial real estate. People are always going to need space for their offices, gas stations, service industries, or warehouse space. Commercial real estate is a safe investment where you can ensure your investment will be protected.

#3 Multiple Tenants

When you own a commercial real estate property it is likely that you own a variety of units or a large building with different office spaces. Commercial real estate allows you to lease your property to a large number of tenants. Since there is a larger number of tenants renting your individual units there is less risk for you if someone misses a payment or moves out before their lease is up. You can use the profits from your other tenants to cover the missing tenant and recoup your money the next month. If you invested in a single-family home and your tenant did not make a payment it could really hurt your financial security because you would not have any way to cover that mortgage payment. Commercial real estate allows you more security knowing that you have income coming in from multiple tenants, not just one.

#4 Remodeling Your Space

Investing in commercial real estate allows you the freedom to remodel the space to make it more appealing to your clients. You are able to fix up the property to your standards and make it look however you want. Once you are satisfied with the outcome you can then lease it out. Investing money upfront to make the space more modern may allow you to increase rents and collect more money from your clients each month.

Unlike the stock market, you have the freedom to change the look of the property to increase the value of it. You have complete freedom over who you rent to, how much you rent it for, and how long you rent it for. If you invest in stocks or bonds you do not have any of these freedoms and are subject to the management of the companies and the market. You cannot change the stock market and must wait it out when it dips. Commercial real estate allows you the freedom to remodel your space to maximize your earnings and protect your investment in any market.

#5 Good Financing Opportunities

Another advantage is when you are looking to buy commercial real estate you can often find good financing opportunities from local banks. Banks see the potential for revenue from investing in commercial buildings and know that the risk is low so they are willing to give you good rates on the loan you take out. They are financing a business, not just a property. Getting a good rate when purchasing a commercial building can make a large difference in whether or not it will be a good investment for the long haul. If you go to a bank and are not happy with the rate they are willing to offer you, you can look around at other banks until you find one that meets your needs.

#6 Low Listing Price

Unlike residential properties, commercial properties can range from very high to moderate costs, many commercial properties can even be relatively cheap. Many commercial properties are cheaper than residential properties in the same area. There are fewer people looking to purchase commercial properties and, since the demand is lower for them, you can often negotiate the price. Purchasing commercial properties for a low initial amount can help you save on costs and ultimately allow you to make more income each month since you will have flexibility when setting rental rates.

#7 Long-Term Tenants

When leasing out the commercial property to business owners you can often encourage them to sign a lease for more than one year. You can incentivize them into signing a lease for 5 to 20 years by giving them a lower monthly rate. Having a long term tenant provides you with more financial security even if you offer the space at a lower rate. You will also save yourself money in the long run by not having to hire a real estate agent to help you list the property or invest in marketing to re-list the property for rent.

When negotiating contracts with these long term tenants, you can also ask that they be responsible for their own maintenance issues. They are business owners and will want things working properly for their customers so they will want things fixed on their own schedule. You can avoid being a maintenance worker and a landlord by putting it in the contract that the tenants are responsible for their own maintenance issues.

In Conclusion

There are many ways to invest your money, but if you are looking for the freedom to set your own rules and carefully watch your money grow each month, you may want to consider investing in commercial properties. Commercial real estate is a great investment because you can buy properties low, get good financing rates, have multiple long-term tenants, and you can remodel your space as needed to increase your income potential. Commercial real estate is a secure investment since real estate properties continually increase at a fairly constant rate. Since people will always need space to live or do business you can be sure that your building will never sit empty for an extended period of time. You can invest money and watch it grow each and every month.

Well, that’s it for today!

References:

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