Most of us still chase the “American Dream” of owning our first house as soon as possible. But what if there was something more powerful you could own in the real estate market? Something that would help you build equity, create a financial legacy for your family, and help you earn passive income in the meantime?
Investing in real estate requires proper knowledge and understanding of the industry and market. A few things to consider before diving deeper into investing include the area or location of the property, investment purpose, and horizons, as well as the kind of property that you should invest in. While most families choose their home as the first real estate property to invest in, they overlook so many options for long-term wealth and retirement building.
Commercial real estate offers several benefits that you simply cannot achieve with a single-family home, no matter where it’s built or how expensive it is. When it’s time to sell, the returns you can gain from rental income, tax benefits, and big payouts motivate many investors, even with the management headaches and risk it takes to become a commercial real estate owner.
Although there are some pros and cons to these two types of real estate, if you’re looking for a solid foundation that will guarantee returns to your investment, commercial real estate is the way to go. Here are a few reasons why investing in commercial is better than single-family real estate:
Commercial real estate tends to have higher returns than residential real estate, as the rent is based on market area rent per square foot—either usable or rentable square footage. Usable is based on the actual space a business will occupy, while rentable square footage includes the common area rented by your tenants. When calculating rentable square footage, triple net is often added to the rent.
The National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index reports a 12.7% average annual return for commercial real estate investments for the last 15 years compared to S&P 500 with only 8.8%. According to Matt Larson, the President of Cricket Realty Advisors, the annual return of the purchasing price for commercial properties currently ranges from 6% to 12%. It may vary according to the area, current economy, and other external factors such as the pandemic. These returns are higher than the average for single-family real estate, which is 1-4% at best.
Easier to Increase Property Value and Exit
Commercial properties also give you the advantage of having numerous options to increase your property value and exit strategy. One way to do this is to increase the number of occupants in your property and the price per square foot. Do this in combination with improvements to your property to make it more attractive to new tenants. You can do this through exterior makeovers, improvements in the common area, or even just by repaving your parking lot. Adding amenities, such as a fitness center, a conference room, or a small cafe or bar, can increase property values.
Tenants Pay For Property Expenses
Commercial real estate investors get to enjoy a triple-net lease. Tenants pay property expenses directly, meaning you only have to pay the mortgage. This contrasts with single or multi-family real estate, where the owner may shoulder said expenses. In addition, if you lease your property to major companies such as Starbucks, Target, or Walmart, they will pay to maintain the look and feel of their branding with a triple-net lease.
This is one of the greatest overlooked benefits of commercial real estate. The returns you see when you sell your home are really not as big as they seem if you were to subtract the maintenance expenses you accrue over your period of ownership. Because commercial tenants are motivated to keep the property maintained, you can put these savings in your pocket and profit more over time.
More Qualified Tenants
With commercial real estate, you expand your business reach and opportunities as more tenants are qualified to occupy your space. In addition, commercial properties usually attract tenants of an entirely different class, such as businesses and corporations, that have the capacity to pay and will respect your property.
On the other hand, with single-family real estate, it becomes much more difficult to find and screen tenants that will pay their rent on time, not break the lease, or cause damage to your property.
Commercial real estate also provides a stable income with longer lease terms compared to single-family real estate. Commercial properties usually lease their spaces for at least ten years, saving you the worry of having to deal with vacancies that come with single-family real estate that typically have a six-month to 1-year lease range. The longer the lease terms, the more positive cash flow. This also means that you can secure your property with a desirable tenant for a more extended period.
The caveat to investing in commercial real estate is simple: it takes more money to play, and therefore puts you at risk of greater losses if things go wrong. However, because your tenants are just as motivated to succeed as you are, these risks can be mitigated with proper management and strategic planning. That is where Viera Capital comes in – providing you with a simplified approach to investing in commercial real estate.
Viera Capital selects promising commercial real estate investments and their tenants to ensure your assets work for you. We handle the investment’s management, logistics, and operational workload, while you enjoy quarterly payouts, tax benefits from depreciation, and big payouts when it’s strategic to sell. We work together with our partners to grow your portfolios exponentially over the years and with a hassle-free management style that suits your needs.
To learn more about investing with Viera Walia Capital, contact us here.