One of the most prominent investment options today is commercial real estate (CRE). It offers a wide range of benefits to investors such as recurring annuity income, the safety of capital, favorable tax treatment, and capital appreciation.
Commercial real estate is an alternative asset class and is has a track record of providing diversified portfolio. The success of commercial real estate is tied to the trends or behaviors of its surrounding to the local market, a smart commercial real estate investment can be a great way to grow your investment with the local and broader economies.
Is commercial real estate currently the part of your investment portfolio? Here’s why you should!
- Recurring annuity income:
Commercial real estate is one of the few asset classes which provides regular monthly income to the investor. In fact, many multinationals and Indian corporates lease commercial properties that pay rent in advance at the beginning of every month. This regular income can be channeled further into equity SIPs.
- High rental yield:
The rental yield gained from commercial real estate investment is around 7 to 10 percent per annum depending on the quality and location of the asset. Thesereutnrs are higher than the fixed deposits at par.
- Capital appreciation:
Over a period fo time commercial real estate also appreciates. The value derived from any real estate asset is through ownership of underlying land which appreciates steadily over time.
- Tax benefits:
If properly structured commercial real estate can provide various tax benefits.to investors by claiming deductions related to depreciation, interest expense, and other items to help to defer taxes.
- Hedge against inflation:
As the prices of the goods and services increase real estate often benefits. That’s because the increase in wages and profits generally increase the amount the property owner charges for space
Different types of commercial real estate:
As the name itself suggests office property consists of real estate that is used for an office building. This includes skyscrapers, high rises in urban areas along with office parks. Office spaces can come in a variety of styles and sizes. The lease term for commercial real estate often long say around 5-10 years.
The multifamily property offers residential housing in exchange for rental payments. Building with more than 4 units is generally known as multifamily property. Few examples include apartment buildings, apartment communities, townhomes. Multifamily lease agreements are usually more flexible in terms of duration.
Industrial real estate is used for industrial business operations. This includes heavy manufacturing, warehouses, assembly, research, and development buildings. Few examples include oil refineries, product assembly factories, pharmaceutical research, and development facilities. Lease agreements for industrial properties are 5 years.
Retail commercial real estate includes properties that provide space that is required for retail businesses to conduct business with the public in general. Few examples include clothing shops and restaurants. This kind of commercial real estate investment can be developed in a large multi-tenant complex in the form of shopping malls, factory outlets, or such other shopping centers. The lease period ranges from 4-5 years.
Commercial real estate investment can provide stable cash flow in the form of rental income. Adding this to your portfolio can offer benefits of new cash flow, along with long term appreciation as well as portfolio diversification. Commercial real estate is a hard asset which is also a scarce resource. Due to its cost, access to such assets is very limited to large institutions investors. Platforms like RealtySlice has made it easier for anyone to access to commercial real estate investing with minimum fees and potentially strong returns.