Commercial real estate has always been one of the most reliable investment options, irrespective of the market cycles. According to studies, despite the havoc caused by the COVID-19 pandemic in most other sectors, CRE is still going strong.
In addition to this, recent developments in the sector have opened doors for the next-gen, savvy investors to invest in commercial property. Here, we discuss the top 7 reasons why commercial properties should be a part of your investment portfolio.
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# 1 Diversification
Every wise investor recognises how important diversification is for their portfolio. But investing in stocks, mutual funds, or EFTs, might not be diverse enough to ensure steady returns in a bear market.
Commercial real estate investment has a relatively low correlation with the stock market. This is why, when the stock market faces a downturn, CRE investments remain unaffected. In other words, volatility in one market doesn’t necessarily mean volatility in the other.
This is what makes it important to invest in commercial property in order to truly diversify your portfolio.
# 2 Tangible Assets
Real estate is a tangible asset. This means that, unlike stocks that can hold immense value one day and absolutely no value the other, real estate would always retain its intrinsic value. Property values may rise and fall but this intrinsic value would be maintained.
Renters may come & go and occupancy might fluctuate, but the property’s value will never go to zero. As long as you possess the land, there’s a possibility for you to make a profit. In other words, the investment could never be worthless.
# 3 Cash Flow
Investing in commercial property ensures a steady and stable cash flow. CRE investments are designed to provide regular dividends on a monthly, quarterly, or yearly basis.
These returns are mostly better than those offered by other investment tools and also let investors enjoy a more favourable tax treatment.
In addition to this, renting your property out also secures a regular in-flow of cash, supplementing your monthly income.
# 4 Tax Benefits
There are a bunch of tax benefits to investing in commercial property. When you put your money in stocks or bonds, you would have to put aside a part of your income to pay capital gain taxes. However, with commercial real estate investments, capital gains can be reduced or completely avoided.
Even if property rates increase over time, investors can make depreciation to cut down their taxable income.
# 5 Inflation Hedge
Commercial real estate is an inflation hedge. Landowners may increase the rent they charge as the economy expands and prices for products and services rise. People make more money as the economy grows, allowing them to pay more for rent.
# 6 Leverage
When a CRE asset is mortgaged with a fully amortised loan, the investor might see each monthly rent payment as a savings programme. The rent pays out the outstanding loan while also lowering the asset’s leverage. As a result of the increased equity, the investor returns to the point of exit.
For example, a commercial property acquired with 20% equity and 80% debt only has to gain 20% in value in order for the equity to reach 100%.
These facts make it clear that investing in commercial property is incredibly important for your portfolio. It offers the required diversification and a stable cash flow and acts as an inflation hedge. However, it’s essential to opt for reliable commercial real-estate developers, such as Ashton Gray, that are equipped with the necessary experience to help you strengthen profitability through well-planned partnerships.
Ashton Gray is a fully integrated provider of real estate development and investment services that can help you make wise, profitable commercial real estate investments. Visit their website to know more about their offerings.