For many people, when they hear about real estate investments, they think about residential properties and flipping houses like what has been popularized on television shows. However, commercial real estate, or CRE, is also an excellent choice for someone who is looking to invest in the real estate market. Instead of buying a single family home to sell or rent, you may find yourself purchasing a multi-family complex, a shopping center, or another business complex. While commercial real estate may not have been exactly what you had in mind when you decided to begin life as a real estate investor, there are certainly some benefits to getting into commercial real estate.
Higher Income Potential
While CRE encompasses everything from office space to apartment complexes, one thing remains the same across the board: the earning potential is significantly higher. Commercial real estate investors can expect to see profits that range anywhere from 5% to 15%. To put that in perspective, stock dividends typically provide an annual return of 2-3%. While apartment buildings are typically closer to the 5% return, suburban office complexes are often considered to be more profitable.
Higher Risk and Higher Reward
While commercial properties generally require a larger initial investment, they also provide significantly more security on your money. If you purchase and rent out a single-family dwelling, you have no stream of income if the tenants move out and you don’t have someone ready to replace them. In a commercial space, especially a multi-family complex, you can absorb the temporary loss of one tenant as you continue to make money from the others. Ideally, you’ll want to have every unit occupied, but when the inevitable happens and a tenant leaves, you won’t be left holding the bag.
Properties Are More Likely to Appreciate
Typically speaking, commercial properties enjoy a far greater appreciation rate than other types of investments. You also have more control over the way that commercial properties appreciate because of internal factors such as proactive management. Depending on the type of commercial property that you invest in, you may be able to put yourself in a position to constantly build off of a given area’s supply and demand trends.
It’s important that you do your homework on your local market and other commercial real estate factors, but you should certainly consider the commercial market if you’re looking to get into real estate investing.