Commercial real estate, or commercial property, is real estate that is meant to generate profit from capital gain or rental income. Commercial property can be retail buildings, warehouses, apartment buildings, or other similar buildings. It has a variety of benefits and can be done to diversify an investment portfolio. Commercial real estate has intrinsic value and is a hard asset. The value also appreciates over time.
Return on Investment and Profitability
One of the best benefits of investing in commercial real estate is profitability. This investment has a regular stream of income. Leasing out the property helps to generate income. This commercial real estate has a higher range of annual returns than single-family home properties. The properties that generate steady income include office spaces and retail. The potential income because of the number of tenants that a property can hold, the annual return can be higher than other investments on average. Current market trends, locations, and infrastructure will affect rental income and appreciation.
Appreciation of Value
Commercial Real Estate has a high likelihood of appreciating in value. This investment has an appreciation in value that meets and sometimes exceeds the value of other investments. Internal factors like proactive management and making cost-effective improvements to the property can cause the property to appreciate in value. An external factor that has an effect is supply and demand.
Tax benefits are an advantage for real estate owners for a number of reasons. A large portion of your income stream can be shielded by mortgage interest and depreciation deductions. You can write off all of your mortgage interest paid during the year. There are several other tax deductions that can be used including a deduction for equipment and furnishings purchased. A tax advisor can give more information and consult with you so that all of the tax benefits can be understood.
Though there are so many advantages to investing in commercial real estate, everything has a disadvantage. Commercial real estate is a heavy investment and can have costlier loans than other investments may have. There are also some tax incentives that just do not apply. Thorough research on commercial real estate needs to be done by the investor in order to know as much as possible about commercial real estate because any mistake can cost. There are also a number of red flags and risks that need to be looked out for. When buying a property that needs major repairs can be one issue and Steven Taylor Taylor Equities has some signs that should be looked out for. Steven Taylor Taylor Equities also outlines some other helpful information about things to watch for.