Why Now Is an Ideal Time to Add Commercial Real Estate to Your Investment Portfolio
Are you tired of watching the Stock Market go up and down hundreds of points a day? Would you like to have a quality investment that is stable and produces good cash flow? With stocks, bonds, mutual funds, crowd funding and other options, it may seem like you have an endless supply of investment options. However, investing in commercial real estate should not be overlooked. Here are several reasons why commercial real estate should be added to your investment portfolio:
Steady Income Stream
For most commercial investors, the investment is secured by credit worthy tenants with long-term leases. This income stream is usually higher than the operational expenses and debt service to carry the property, leaving you with a substantial positive cash flow. Additionally, the returns from commercial real estate are often greater than the average dividend yields found in the Stock Market.
Appreciation of Assets
Another important reason to invest in commercial real estate is the ability for the asset to substantially increase in value. Unlike with residential real property that is mostly influenced by market demand and comparative sales to similar properties, commercial properties are frequently valued as a multiple of their net operating income. This multiple can be heavily influenced by internal factors like making cost-effective improvements and proactive management. Property owners can also drive an increase in appreciation by:
- Raising rents
- Upgrading existing building and facilities
- Adding square footage
- Reducing operating expenses
- Investing in energy-saving technology
- Improving the credit and market visibility of the tenant base
- Adding amenities and services
The cornerstone of any solid investment plan is diversification. Commercial real estate is different from residential real estate and other investment types like stocks and bonds. There is low correlation between commercial real estate and the stock market, so if the stock market plummets, it is possible for commercial real estate investments not to be impacted.
There is also the opportunity for investors to further diversify their commercial holdings. Commercial real estate includes multi-family apartment complexes, warehouses, retail, and office properties.
Hedge against Inflation
Another way that commercial real estate provides a safe investment is that it hedges against inflation. As goods and services increase in cost, commercial landlords can respond by raising rents. Commercial real estate often grows faster than the rate of inflation. For example, the Federal Reserve Bank of St. Louis shows a minimum 5% increase every quarter between 2012 and 2016, compared to the Consumer Price Index indicating a rate of inflation at 2% or lower during the same timeframe.
Pride of Ownership
The pride of ownership cannot be overvalued. Owners of commercial real estate often feel a tremendous sense of pride by helping improve the economy, provide work spaces, take part in commerce and engage in other business activities that contribute to society.
Commercial real estate is a hard asset that has intrinsic value in its building and land. “You can go and touch” the investment. It is a store of value that has proven to be a wealth generator.
If you would like to learn more about investment opportunities, I offer a free consultation to interested