By Gary Tasman
Fledgling investors are typically given the same advice: Set your goals, know your risk tolerance, and start with broad investments like mutual funds in a tax-deferred Individual Retirement Account. Many people stick to this advice right up until their retirement, investing primarily in stocks, bonds, and mutual funds. These types of assets can be purchased quickly, often with the click of a mouse, and don’t require tens of thousands of dollars at a time to invest. For investors with limited time or capital, these investments are a sound long-term strategy.
Real estate, however, should not be overlooked as an investment opportunity. Although there are some significant barriers to entry which we’ll discuss later, there are also numerous advantages to including commercial property in your investment strategy.
Benefits of Investing in Commercial Property:
- You can invest with debt
Anyone who’s purchased a home knows that you don’t need to pay the entire amount in cash. Instead, buyers place a down payment then finance their home. Commercial property investment can also be purchased with leveraged funds. On a $2.property, you might invest $50,000 as an initial down payment, but you’ll still reap the benefits of owning $250,000 worth of real estate.
- You can earn passive income
One of the largest benefits to investing in real estate is the cash flow that your property can produce. The monthly rents you receive from your tenants should offset your expenses and produce passive income.
- You’ll receive healthy tax benefits
There are numerous tax advantages to real estate investing. Property owners are able to write off their interest payments, depreciation, renovations, maintenance, and other operational costs. Additionally, the passive income earned by investors is taxed at a significantly lower rate than ordinary income.
- You can hedge against inflation
While no investment is truly recession-proof, the value of real estate reacts in proportion to inflation. When inflation rises, so does the value of your property, and rents will often increase. Nearly every other type of investment, including stocks, react to inflation in the opposite direction.
- You’ll experience less volatility
Anyone who follows the stock market can tell you that stock prices can change quickly, as dozens of variables can impact stock prices. As an example, just this year, Tesla stock has ranged from a high of $880 per share to a low of $563, dropping in value 36 percent between January 8 and March 8. Property is substantially less volatile. While you may not experience the exhilarating highs of a bull market as a property owner, you also won’t endure the nauseating lows of a bear market.
Challenges to Investing in Commercial Property:
While there are many benefits to investing in real estate, there are also challenges. Although buyers are able to mortgage their properties, cash can still create a high barrier to entry. Investors need large down payments to enter the market, and transaction fees can total as much as 10% of closing costs. Additionally, purchasing real estate takes substantially more time and research than purchasing stocks and bonds. Between due diligence, financing, and paperwork, it can take up to three months to purchase commercial property.
After completing a purchase, real estate investors must still pay taxes and operational costs like maintenance, utilities, and insurance, even if the property is sitting empty and not generating income. And because real estate is an illiquid asset that can’t be sold with a simple click of a mouse, investors can be saddled with their property for much longer than they initially expected.
Even with these drawbacks, real estate can be a valuable asset in your investment portfolio, and your commercial property broker is an instrumental partner as you consider your future investments. The professionals at Cushman & Wakefield | Commercial Property Southwest Florida are ready to help you determine your investment goals and strategy, locate properties that meet your needs, secure appropriate financing, and even assist you with the management and maintenance of your commercial property after your purchase.
Start the process now
Call, email or fill out the form below to get the process started to sell your property.