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Is Commercial Real Estate a Good Investment?

The contents of this article do not constitute financial or investment advice. To find a solution tailored to your needs, reach out to our team of commercial real estate professionals.  

Is commercial real estate a good investment? Some investments can be considered risky because there is no guarantee that you will make your money back, let alone see a significant return. When choosing where, when, and how to invest your money, you’ll want to choose an avenue that has a long history of being generally safe and profitable. 

Throughout the years, and even the volatility of the pandemic, commercial real estate investment has remained one of the most profitable industries. In fact, Forbes recently published a list of the top 10 industries that produce the most billionaires. Investing holds that #1 spot, while real estate jumps in at #7!

Also, real estate investing positioned John Jacobs Astor as the first American millionaire and the richest person on the Titanic! Although the markets have changed considerably since the 1800s, this just goes to show that commercial real estate is a good investment then and now. 

What is Commercial Real Estate Investment?

Before we dive into what makes commercial real estate a good investment, let’s describe what commercial real estate is. 

According to Investopedia, commercial real estate is “property that is used exclusively for business-related purposes or to provide a workspace rather than as a living space, which would instead constitute residential real estate. Most often, commercial real estate is leased to tenants to conduct income-generating activities. This broad category of real estate can include everything from a single storefront to a huge shopping center.”

Commercial real estate buildings include:

  • Retail buildings
  • Office buildings
  • Warehouses
  • Industrial buildings
  • Apartment buildings
  • Mixed-use buildings (buildings that include a combination of property types, i.e., retail, offices, and apartments)

What Makes Commercial Real Estate a Good Investment?

Here are 7 reasons commercial real estate is a good investment:

1. Passive income

Investing in commercial real estate can provide a strong stream of income that is collected regularly. In most cases, investors collect income while a property management company takes care of the property and the details that come with being a property owner, like rent collection, evictions, and tenant screenings. 

If done properly, you can see a steady stream of income while you sleep, travel the world, spend time with your family… whatever your heart desires! 

2. Diverse portfolio

A diverse investment portfolio is a strong portfolio! If you want to be serious about investing your money, you must have a portfolio that includes more than stocks and bonds, mutual funds, and crypto. Not only does this prove that you’re an experienced investor, but it protects your investments whenever the market turns down.

The real estate market doesn’t have a strong connection to the stock market. Therefore, if the stock market crashes, there’s a good chance that your commercial real estate investment will be unaffected. Your income from commercial real estate will be able to make up for losses until the stock market evens back out. 

3. Tangible assets

Commercial real estate will always hold value because it’s a tangible asset. Even if the real estate market has a dramatic downturn, your property will never be completely worthless. Unfortunately, the same cannot be said for the stock market. 

While it’s absolutely possible to become extremely wealthy from investing in the stock market, you always run the risk of investing in a business that won’t exist in a few years. Commercial real estate properties will hold value as long as they are habitable. Therefore, there is always the possibility of profitability. 

4. Tax breaks

Many commercial real estate investors get into the industry because it has incredible tax benefits. Investing in stocks and bonds requires investors to set aside some of their profits to pay for capital gains taxes.

When it comes to commercial real estate investing, however, investors can write off property depreciation value even if their property increases in value year after year. As such, capital gains can be reduced or completely avoided. 

Additionally, commercial real estate investors can reduce their taxable income after selling a property by filing a 1031 tax-deferred exchange. The only stipulation is that you are required to purchase another property of similar value within a given time period.

5. Inflation-proof

Consumer prices have risen over 8% in the last year. This concerns many people because their incomes haven’t risen to match – it makes it difficult to keep up. When you invest in commercial real estate, however, you have much more control over your income. 

As consumer prices rise, you can increase how much rent you charge. Theoretically, you could absolutely increase your rent prices by 8% to make up for inflation, and you won’t lose a penny. If you own commercial real estate in a high-value area like New York City, Los Angeles, or Miami, you may be able to raise rents more than the inflation rate. Business owners are often willing to pay premium prices to settle into a prime location.

6. Business relationships

When it comes to business, it’s all about who you know. Getting into commercial real estate investing opens you up to a whole new world of networking opportunities. Not only can you meet other investors, but you can connect with dozens of business owners who sign leases with you. 

These business relationships could lead to other great investment opportunities and make you a well-rounded business professional. As a result, you may find it easier to make smarter investments in the future and close deals faster. People enjoy working with others who have a good grasp on the industry and seem like they have “been there, done that” already. Every investment can essentially be seen as a networking opportunity that will take you further and further in your career. 

7. Assistance opportunities

There’s no reason you should have to get into the investing industry alone. In fact, many people branch into commercial real estate with business partners or co-investors. If you have the capital and a desire to learn, you may be able to find a co-investor who is willing to go in on an investment property with you. 

This type of relationship works because it’s mutually beneficial. Your co-investor will get to make income on the property and you get to learn how to be a great commercial real estate investor – while also making income! Even some of the most successful real estate investors partner up with other people to obtain new properties. Most of the time, it provides a safety net and makes for smart investments. 

There’s no doubt that the answer to the question “Is commercial real estate a good investment?” is “yes!” 

When you’re ready to start investing in commercial real estate or grow your investment portfolio, Speed Commercial Real Estate will be here to support you. 

Allow Speed Commercial Real Estate to Find Your Office Space

Speed Commercial Real Estate can help you find an investment property that is perfect for you, whether you’re a seasoned investor or buying a property for the first time. Contact us today to discuss commercial real estate investment properties!

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