Any investor knows that diversifying one’s portfolio is vital and wise. When one type of investment fails or performs poorly, you can still make money off the others.
Despite market fluctuations and severe economic cycles, commercial real estate remains a desirable investment because the industry is generally stable. Unlike publicly traded stocks, commercial real estate is privately owned, making it less volatile and capable of yielding plenty of benefits for its investors.
People will usually dip their toes in stocks, bonds, mutual funds, or exchange-traded fund (ETF) to avoid the hazards of “putting all your eggs in one basket.” This is something you can totally do in the West Chester, PA commercial real estate market.
Let’s take an in-depth look at commercial real estate investing and consider valuable real estate advice for buyers.
What is commercial real estate?
Commercial real estate refers to properties that are primarily used for business rather than residential purposes. These include but are not limited to the following:
What are the advantages of commercial real estate investing?
Commercial real estate investments, when done right, bring a lot of benefits. Having a commercial property for sale or lease in Chester, PA, can help you achieve many of your goals. It can boost your child’s college savings, enable you to save more for your retirement, and achieve financial success.
A diversified portfolio
Unlike stock and bonds, commercial real estate isn’t affected if the global market equity dips. That’s because commercial real estate has a historically low correlation with global stocks. This frees you up to truly diversify your portfolio.
Investors can choose among the different kinds of commercial property. Most importantly, there are so many opportunities that are yours for the taking. Warehouses, for example, can be renovated to reduce inefficiencies and contribute to better business outcomes. Technology and the smarter use of energy can make your commercial property stand out and make it more desirable to more potential lessees.
Better cash flow
If you’re after long-term and stable cash flow, investing in commercial real estate is worth your while. You have better chances of income being distributed yearly, quarterly, or even monthly. But to reap these benefits, expert property management is a must.
As commercial real estate can appreciate over time, you get to gradually build wealth. Moreover, property appreciation is an effective hedge against inflation. Rents rise with inflation, and the value of a piece of commercial real estate is based on them. If the rent grows or even doubles, so does the value of the property. Inflation also drives new property development. This can indicate strong economic growth.
People are enticed by commercial real estate because it’s a hard asset: something that investors can touch and see. You can visit the property to know more about its condition, location, and other factors that can impact earnings. If something happens to a building or structure on an investment property, you still have the land it’s on – you can rebuild or sell. This makes commercial real estate perfect for investors who are willing to play the long game.
Potential tax rewards
Unlike stocks and bonds where you are required to pay capital gains taxes, you can enjoy potential tax rewards with commercial real estate. There are ways you can reduce capital tax gains and even eliminate it completely over time.
When it’s time to sell your commercial property, you can do a 1031 exchange. This basically allows you to reinvest your profits from the sale instead of paying capital gains taxes. Read more about 1031 exchanges here.
Leverage and equity
Buying commercial real estate with a mortgage gives you some leverage, which, in turn, helps you achieve more significant gains compared to other asset types. With property management, you can pay off your loan using your investment income. And as you gradually pay off your debt, you build equity, which is basically the return on your investment.
Equity is an asset that can increase or decrease in value depending on real estate market conditions. Even if you’re slow in paying off your loan, you can quickly build equity as commercial property appreciates in value.
High profits, predictable returns, and proven historical performance are just some of the reasons commercial real estate is a sound investment.
Looking for West Chester, PA real estate for sale? RE/MAX Direct can help. Call 610.430.8100 or send an email at remaixdirectwc(at)gmail(dotted)com to learn more about commercial real estate investing in West Chester. You can also browse our blog to find more real estate tips for buyers.