Your Investment Portfolio: Why you Should have Commercial Real Estate

Property fromĀ Dayton OH has always been a popular investment. Although the most common property investment is the single residential property, investors should look to have an informed consideration of all their options, including commercial real estate. It has a large income and equity potential, although it comes with bigger risks. Profit is obtained from capital gain or rental income. Here are the benefits of having a commercial real estate in your investment portfolio.

Commercial real estates are great for diversification against financial market volatility. They generally provide greater income than other investments such as stock dividends or bonds. It is not as volatile as the stock market and does not fluctuate with stocks and bonds. Even companies thought of as “too big to fail” such as Enron and Lehman Brothers have shown that no share is immune from volatile losses. Being an asset class in which you can physically touch brings a greater sense of stability.

Commercial real estates have high appreciation value as value is placed not only on the land itself but any improvements made on the property. Investors can appreciate the value of their property through renovations, increasing rent, or having good management. Inflation can also cause appreciation which makes it a great hedge against inflation as well. Furthermore, newer developments in the surrounding area will automatically appreciate the value of the property.

Since it is an equity investment, investors can enjoy a greater overall return by selling their property to cash-in on appreciation or capital gain. This requires skill as timing is important due to property values rising and falling according to market cycles. Sometimes an investor would have enjoyed higher long-term returns if he had held. A good selling decision would also factor in the estimated future capital growth of the property.

Commercial real estates are great for leveraging. This increases risk but also the potential returns of the property. An investor puts debt on the property to invest with the expectation that the profits from the investment will be greater than the cost of borrowing. This is common practice in commercial real estate investments as a higher return is typically enjoyed than buying the property outright. Banks are usually lenient with commercial real estate leases due to income stability.

Investors not interested in leveraging can instead buy a minority ownership stake in a commercial real estate. This passive investment usually provides a steady and rising income from factors such as a proactive management or rising rents.

Investing in commercial real estate comes with a lot of tax benefits. There are tax deductions available for interest expense and depreciation that increase the investor’s after-tax yield. Investors should hire a tax adviser for consulting and to make full use of their own unique tax situation.

Any investment should be made based on each individual’s financial situation, goals, personality, and risk tolerance, Your existing portfolio should also be taken into consideration. A commercial real estate is a good investment option due to its stable and large potential income, different options for profit, and potential for diversification.