The Benefits of Investing In Commercial Real Estate

Commercial real estate has been an attractive choice for investors for many years. Not only does it offer the potential for great returns, but it’s also a relatively safe and secure investment. Plus, with the tax benefits that CRE investment properties provide, it’s an excellent way to diversify your portfolio. Here are the top benefits of investing in commercial real estate properties:

What Is Commercial Real Estate?

Commercial real estate includes retail, office, industrial, multi-family properties and other specialty types like hospitality and mini storage. These property types are occupied by businesses and secured by a lease agreement. The lease terms typically range from three to ten years (sometimes longer) and offer a steady stream of income to the property owner. Year over year, commercial properties remain more stable compared to residential properties, and offer a larger return on investment.  

Return On Investment

As an investor, your main objective is to add as much value to your portfolio as possible. Commercial real estate gives you the opportunity to make a significant profit due to the influx of rental income from your tenants. Most leases include an annual rent increase to keep up with - or vastly exceed - market fluctuations. As a property owner, this allows you to continually receive income to cover the property expenses as well as additional profits. On average, commercial properties have an annual return of 6% to 12% of the purchase price. 

Less Risk

Risk can be alleviated by a mix of quality tenants or the strength of a single tenant. When the risk is spread among the tenants, one bad apple in the group won’t make a big dent in your investment since the other tenants are still contributing to the operating costs and cash flows. When you have a long term lease with a national tenant, that can also provide a higher level of security for your investment. Most CRE leases are triple-net leases (NNN), which means that the tenants are responsible for their rent, plus their share of the building expenses and common area maintenance fees. Keep in mind that a lease agreement of three to ten years will give you the assurance that you will have a steady flow of income, regardless of the market fluctuations.

Tax Incentives

One of the benefits of investing in commercial real estate is the tax incentives. The IRS offers incentives to property owners for expenses related to the operating, upkeep, and maintenance of your commercial properties. Plus, you can depreciate the cost of the building over time so you can benefit from decades of deductions that can help you lower your taxable income. If you choose to sell a property, you may qualify for a 1031 exchange which will help you defer capital gains. 

Increased Appreciation

As a commercial real estate owner, you have the ability to add value to the property by increasing the rent, modernizing the exterior or interior with new upgrades, adding new amenities, and even applying for a zoning change. An existing property will benefit from inflation as well as the rising costs of surrounding new developments. 

Better Tenants

Compared to residential properties, commercial tenants are usually fully responsible for the upkeep and maintenance of their space. Since they are business owners as well, they tend to be more professional and care about the appearance of their business. Maintaining a positive image leads to keeping the property as clean and well-maintained as possible on their part. 

Invest With Us

As with any investment, it’s important to do your due diligence before diving in and timing can be very important. Crisis breeds opportunity and recessions like the current one usually lead to rare opportunities to buy properties for cheap. Also, doing your homework will give you a greater sense of confidence in your investment, and will ensure that you're selecting an option that aligns with your financial goals. 

Fortress Equities recently announced the new Fortress Equities Real Estate Value Fund, LLC. The Fund was formed for the purpose of investing in real estate opportunities that will become available as a result of the economic downturn related to the COVID-19 pandemic in 2020, and is managed by Fortress Equities, LLC, a Las Vegas, Nevada based private equity real estate company. Accredited Investors are encouraged to learn more about The Fund and register to receive more information.