Why invest in Commercial Real Estate?
By now you have surely heard quite a bit about the commercial real
estate market and how successful investors are taking advantage of
opportunities all around you. Fundamentally, Commercial Real
Estate Investment is all about buying and selling property that does
not serve as your primary residence. And, now you are
wondering, just what is all the fuss about?
To start off, commercial real estate is one of the only businesses
that favors local investors. All properties are different and have a
set location. This means that they are primarily vulnerable to the
local economy. Who better to understand the local economy than
someone who lives in the area? This makes the search for commercial
property much easier. As an independent investor some of the best
opportunities to buy are right down the street - the best way to
learn about a new property is to just go visit!
This also means that large companies have a hard time successfully
purchasing large amounts of property to build economy of scale. Even
one of the largest owners of buildings in the US - Boston Properties
- is only worth about 10 Billion Dollars. This pales in comparison
to other commodity holders (ie Exxon Mobile worth over 250 Billion).
When companies cannot form scalable processes around the purchasing
and operation of a property (because each property is so unique) it
becomes difficult to buy a large quantity of it.
Furthermore, there is no set exchange for commercial real estate.
Unlike the New York Stock Exchange for stocks, most commercial real
estate transactions are conducted and negotiated between
individuals. When an individual wants to purchase a property he or
she has to actively go seek out a buyer. The transaction isn't
automatic. Again, this prevents any large companies from building
dominance in the market to shut out small investors.
Investors tend to be majority owners of their property. This means
that in many cases you will have the opportunity to buy from a human
being - rather than a committee or representatives of the
shareholders. Interpersonal interaction means that the process of
buying and selling property is not well standardized. When there is
volatility in each deal, there is opportunity for additional profit.
Additionally, this presents an opportunity to bring your own
personal charm to sweeten your investment transactions.
Commercial Real Estate generates revenue while appreciating in
value. A good investment property can be a great source of income
through commercial leasing or apartment rentals. However, the real
payoff comes when the overall value of your investment increases.
More importantly, you can take an active role in the appreciation of
your investment. Everything from streamlining the management of the
property to changing tenant base enables investors to improve the
value of their properties. This is especially different from
traditional investment such as stocks where investors have little
control over the performance of their investment and often times
even less information than professional investors. When you own a
piece of property you generally have access to all available
information about your investment. This is rarely true for stocks or
commodities where institutional investors make lucrative deals that
individual investors have no access of even knowledge of.
Commercial Real Estate has a moderate barrier to entry. Most
commercial properties require a large sum of money to purchase. This
creates a barrier keeping casual investors out (unlike the
residential market). With less investors competing for great
property - there is simply more opportunity to find the commercial
real estate property of your dreams. However, it is important to
understand that investors can still leverage themselves into the
market. Commercial real estate is one of the new investments where
purchasers can borrow a significant portion of the capital required
to purchase and still reap 100% of the benefits of owning a
property.
Commercial Real Estate provides tax advantages. Effectively, the IRS
enables the Real Estate Investor to treat the property as a
business. This allows for the investor to write down the value of
improvements or other expenses across several years - enabling
investors to offset spikes in revenue.
Regardless of your background commercial real estate properties
represent a unique and lucrative investment opportunity not to be
ignored. Especially in times of economic uncertainty and turmoil, a
tangible investment makes for a great way to shelter your money from
the storm.
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