Commercial Real Estate Basics
Investing in any type of real estate is a great way to build wealth, especially generational wealth, and offers five benefits:
Tax Advantages - real estate offers several tax benefits
Cash Flow - "profit" after paying the property expenses
Inflation Hedge - unlike other investments, real estate in terms of both rents and property values move proportionately to inflation
Leverage - the ability to tap into other's capital (typically from a bank) and then spread one's available investment capital across multiple opportunities
Principal Pay down - portion of each loan payment is used to pay down the loan principal and build equity into the property
Many investors that invest in real estate, do so in residential assets like condominiums, townhouses, single-family homes, and complexes up to four units. Commercial property is defined by five or more residential units within the same structure. Commercial real estate is a fairly diverse asset class:
Multifamily
Senior Housing
Hotel/Hospitality
Industrial
Retail
Office
Self-Storage
Mobile Home Parks
Many investors are either unaware or under the belief that commercial real estate assets like multifamily are outside their reach or reserved for institutional and wealthy investors. While for many years these players dominated the commercial real estate space, this is no longer the case. The growth of online crowdfunding platforms and private equity companies raising investor capital via syndications in the last several years now make it readily accessible for motivated investors to become involved in commercial real estate.
Investing in commercial real estate provides investors with several potential benefits, including:
Relatively consistent cash flow
Lower vacancy risks as properties tend to have multiple units, and this mitigates for inevitable vacancies
Higher income and appreciation with an annual income up to 2-3 times higher than residential real estate
Higher availability of tenants
Less competition (perceived barrier to investment entry in this asset class means that it tends to be less saturated with other investors)
For more information on commercial real estate and passive investing in multifamily assets, please check out our eBook - More Doors, More Profits - by clicking here.