When most investors consider the real estate market, their initial thought drifts towards residential properties. This is the more conventional way to invest your money in this sector: you buy a house, or two, and either flip it for profit, live in it for years before selling it for profit, or rent it out to tenants and earn regular income.
It’s a method that’s worked for decades, yet commercial real estate investments now rival it in terms of popularity. In this case, you’re investing in properties for commercial use – which rarely means that you use them yourself. Instead of buying homes, you invest in:
- Offices
- Warehouses
- Apartment complexes
- Retail units
- And so on
This immediately brings some advantages that you don’t see with residential real estate investment, and here’s why it’s now a very common choice for serious investors:
Financing Has Become More Accessible
It used to be considerably harder to find proper commercial real estate finance options, mainly because banks were unlikely to give them out. Nowadays, you have real estate financing from lenders that are specifically designed to help people invest in commercial properties. It’s an option that’s now become more accessible, especially if you present a clear plan for what you want to do with the property, and can back up your ability to repay the loans.
May Have Tax Advantages
Any savvy investor knows that one of the biggest investment mistakes is losing returns to unnecessary tax payments. Don’t get things mixed up: this doesn’t mean you should avoid paying tax on your investments if you’re required to. Instead, it considers the many legal (and often encouraged) ways that you can obtain tax write-offs or advantages based on what you’re investing in. Commercial real estate usually has several tax benefits – such as mortgage interest deductions, writing off certain expenses, and so on. It’s something you should absolutely discuss with a professional tax expert to understand fully, but the bottom line is that you can usually claim more tax relief on commercial investments than residential ones.
Better Income Potential
If you invest in a single-family home, that counts as a residential real estate investment. As good as this can be for bringing in monthly rent, you only have one occupant at a time. Commercial real estate often lets you rent out your property to multiple occupants at once, such as:
- Multiple businesses sharing an office
- A large property that’s split into multiple flats, meaning multiple households
- Businesses renting out shared warehouse space
Other examples exist, but these three already do a great job of showing the income potential of a commercial real estate investment. Instead of one tenant paying rent, you have multiple tenants paying you at the same time. You’re also way more likely to secure long-term leases than you will with residential property investments, which ties you into a regular source of income for years.
On top of all of this, commercial real estate investments are gaining popularity because they’re a good way to diversify an investment portfolio. A lot of serious investors want to add something more than stocks & shares to their roster, and commercial properties look like a good shout. Of course, they require a lot more money than other investment options to get started, but the payoffs could be worth it.
