Benefits of Investing in Commercial Real Estate
If there’s one form of investment every person should look into, it’s commercial real estate, which is property that’s used solely for business-related purposes. You might be a little on the fence as investments always come with a risk. However, where there’s risk, there’s bound to be rewards. Investing into commercial real estate can have many benefits that other forms of investments don’t have. Here are a few benefits of investing in commercial real estate.
The Prices Are Low
One of the most notable benefits of investing into commercial real estate is its lower-than-average costs. This is one of those things where you can easily invest in it and see a large profit. Compared to most investments, this can give you up to 12 percent as an ROI. Granted, you still have to put money towards the down payment, which clocks in at an average 25 percent. You’ll need to calculate how much building you’re looking to invest in before you can get an estimate. Every building is different and won’t have the same price tag.
If you’re not able to finance the down payment yourself, don’t worry. There are plenty of alternative financing methods, but the most efficient way is to take out a small business loan. This type of loan is what business owners take out to secure capital they can use for business-related needs. These needs can be anything ranging from purchasing the necessary equipment, getting renovations and even investing. Before you can acquire the necessary funds, you must first be approved for the loan. Unlike other loans, like a personal or student loan, lenders want to see borrowers have a decently high credit score. Preferably, you want to have a credit score that’s over 600.
Steady Cash Flow
Similar to stocks, investing into commercial real estate can provide you with a steady cash flow. There are two types of cash flow: equity investment and debt investment. Debt investments are where you use the building as a form of collateral. In return, you’re practically guaranteed a fixed profit. Equity investments are somewhat different. Rather than use the building as collateral, you’re basically a shareholder who owns a part of the building. And as the price of rent increases, so does your earnings.
You Have Leeway When It Comes to Taxes
Compared to most investments, commercial real estate does give you some breathing room when it comes to taxes. For starters, any capital earnings you receive can either reduce how much you have to pay in taxes or can be avoided altogether. If you’re able to invest in what’s known as a prime location, the value might increase as time goes on.
You Have an Edge Against Inflation
Inflation is basically where prices, regardless of what it’s for, get higher. But through your investment, you’ll be able to increase the rates for rent. This is because the more growth the economy sees, the more money people can make. It’s important for you to keep an eye on this, so you can capitalize on it when the time is right. However, be sure not to overestimate what you afford to invest.
It is a Hard Asset
A hard asset is a type of physical investment that doesn’t lose value over time. Despite the risk of losing property value, the investment itself will still be valuable on its own. This is a great form of protection against losing profits should it ever occur. It’s not the same with stocks as those can be very valuable one day and not have any value the next. You won’t have to worry about the sudden fluctuation.