One of the major benefits to Commercial Real Estate Investments is that the assets are generally secured by leases which provide a regular income stream, considerably higher than typical stock dividend yields.
#2 Excellent Appreciation of Asset Value
Commercial Real Estate Investments have traditionally provided tremendous appreciation in value that meet and exceed other investment types. Properties generally can go up in value from internal factors such as proactive management – making cost-effective enhancements to the property that improve the usability and desirability of the asset, and external factors such as supply and demand imbalances.
#3 Accumulate Significant Equity through Leverage
Another important characteristic of commercial real estate investing is the ability to place debt on the asset which is several times the original equity. This allows you to buy more assets with less money and drastically magnify your equity as the loans are paid down.
#4 Multiply Current Cash-Flow through Leverage
When investors place “positive leverage” on an asset, they successfully multiply their net spendable cash by borrowing money at a lower cost than their property returns back to them. A quick example: your friend loans you $100 and asks for $101 back, one dollar interest. You then immediately loan that $100 to someone else and ask for $2 interest…paying back the $101 owed and making a profit with no additional investment…you just partook in positive leverage. This happens all the time in commercial real estate investments.
#5 Provides a Superior Hedge Against Inflation
According to many of the country’s best economists, commercial real estate investments had the highest correlation to inflation when compared to other asset classes such as the S&P 500, 10 year treasuries, and corporate bonds. As the United States, Asia, and Europe continue to carry out policies to print more money to spur economic growth, it is important to recognize the benefits of possessing commercial real estate as a hedge against inflation. When inflation occurs, the price of real estate, usually multi-tenant assets, that have a high ratio of labor and replacement costs, will also rise.
#6 Unique Security Advantage
Commercial Real Estate is one of the few investment classes that is a hard asset that has significant value. The property’s land has value, as does the structure itself. By choosing the location and asset quality wisely, investors can benefit from the security of knowing that they own an asset that has the potential to earn income regardless of what happens to the existing tenant(s). For this reason, commercial real estate investments do not fluctuate with the same volatility as the stock market.
#7 Tax Benefits
The US Tax code benefits real estate owners in a number of ways. Mortgage interest and depreciation deductions can protect a large portion of your income stream. It is suggested that one consults his/her tax advisor to understand all of the benefits.