Wondering what the benefits of commercial real real estate are? Read this list of five benefits below… then if you have any questions, or want to to started with your investment, please contact us!
1. Get Higher Returns
Have you heard the saying, ”with greater risk comes greater reward”? That is definitely the case with commercial properties & higher returns. If you compare returns on residential properties, most commercial property cash flow and returns can be much more attractive. According to the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index, commercial real estate investments have an annual average return of 12.7% compared to the S&P 500 with an average annual return of 8.8% over the past 15 years. More space equals more tenants, which equals more money. This is pretty good for an investor looking to diversify his portfolio.
2. Importance Of Qualified Tenants
Investors who are trying to rent out their single family properties need to find tenants who are qualified and who will keep the property in good condition. That is not always an easy thing to do–and good luck evicting them! Commercial tenants, on the other hand, are usually businesses, corporations/organizations. Because they are typically backed by a larger company, they are more likely to respect the property.
3. The Triple Net Lease
Triple net leases may vary from case to case, but they are very valuable for commercial real estate investors. With a triple net lease, the property owner does not have to pay any expenses on the property. The lessee handles all property expenses directly, including real estate taxes. This is good news for the the property owner, as the only thing they have to pay is the mortgage. Large companies like Target, Walmart, etc. will usually sign this type of lease in order to maintain a look and feel that is inline with their brand. They manage those costs while the investor pays practically nothing in maintenance costs. This is what we call a win – win. There are other net leases that investors can consider; however, a triple net lease is specifically a benefit of commercial properties alone.
4. Longer Lease Terms
Commercial leases are usually longer than residential rentals, which typically only range from six to twelve months. Whereas commercial properties tend to lease for anywhere from five to 10 years. For investors, this means lower turnover costs and vacancy rates. The long term lease signals reliable, positive cash flow. Commercial investors may end up with bad tenants for periods of time, but with a good application process and legal protection, an investors can avoid and long term issues.
5. Easier To Increase Value With Commercial
Many people don’t realize this, but one of the differences in residential and commercial real estate is the way property values are determined. While residential real estate is determined by comparable properties, commercial real estate is impacted by how much revenue it generates. This means that the more cash flow a commercial property is bringing in, the higher the property value will be. With the right tenants, investors could see an increase in value at a much faster rate than residential rentals.
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