We are well into 2017, but some people are still on the fence about investing in real estate. They don’t know what the new administration is doing with rule and regulations. They aren’t sure how the economy is going to react. They are still scared from many years of bad press on real estate holdings. However, real estate has always been a great investment. This holds true for 2017. Today, I’m going to give you eight reasons why you might want to consider commercial real estate to expand your wealth.
#1: Regular Stream of Income
Commercial properties offer a regular stream of income through the use of leases. Most commercial property leases at a higher rate than residential property, keeps the tenants for a longer period of time, and has fewer vacancies. This means your income stream will likely produce higher than stock yields.
#2: High Appreciation
Historically, commercial real estate appreciates faster than other investments. This is especially true if you have the ability to make improvements in a cost-effective manner. As you do so, you can then make your investment more appealing, increasing the appreciation of your asset.
#3: Ability to Leverage
The best way to add wealth is to find a way to do it using leverage. On commercial property, this means that you can place debt on the property that is significantly higher than the initial investment. This allows you to purchase even more with other people’s money.
#4: Intrinsic Value
Property has intrinsic value, which is not true of many other investment classes. When you choose commercial real estate wisely, the location and structure have value even when a tenant is unsuccessful. Because of this value, commercial real estate is much more stable than the stock market, making it less risky and with higher rewards.
#5: Tax Benefits
Very few investments offer tax benefits. However, real estate is one of the exceptions. The biggest two benefits include the mortgage interest deduction and the depreciation deduction. Both of these can help offset your income stream and lower your tax bill. Always be sure to work with a tax professional that understands real estate to get all the benefits, while avoiding tax mistakes that can be costly.
#6: Seller Financing Available
Many current commercial real estate owners are older. Since the recession, many also have had a higher vacancy rate. These older owners are often willing to offer owner financing in order to bring in a steady income stream. In fact, I just picked up a 15,000 sq ft medical building for $565,000. That’s just $38 per square foot. I gave them $200,000 down and negotiated a five year term at 5% interest only. They are happy to have a constant income stream and not have to worry about tenants.
#7: Less Competition
The residential market has a lot of competition. If you don’t act quickly, another investor will get the deal. The commercial real estate market has less investors interested. This means that you can often find better deals.
#8: Pride in Ownership
Although this factor is not easily turned into hard numbers, there is something very satisfying about owning something of value. With commercial property, you can see how your property affects your community and moves along the economy. This feeling is like none other.
John Trautman is founder and CEO of the Real Estate Knowledge Institute (REKI). An author, entrepreneur and longtime real estate investor, he is committed to inspiring and helping other aspiring real estate investors who have an interest in everything from home flipping to buying and selling rental properties to earning passive income through various real estate investments.