Investing in Commercial Real Estate
You have been investing in residential properties for some time now and you feel like you can make the jump to investing in commercial real estate. This could be true, but keep in mind that investing in commercial real estate is far more risky and more expensive than investing in the residential real estate that you are used to. Because it is riskier, it normally can make you more profit. There are positives and negatives to investing in commercial real estate.
In general, the profit attained from commercial real estate can be traced back to the overall economy. As things look up in the business world, the value of commercial real estate tends to be on the rise. Commercial real estate has increased in volume approximately 20% over the last few years, making it easier for small investors to profit from this niche of the real estate market.
Of course, the value of all commercial real estate is not solely dependent on the overall economy of the country, it is more dependent on the economy of your region, town, or even neighborhood. If your property is located in an area that has seen little growth in recent years, you are not likely to make a decent profit.
During a recession, commercial foreclosures and vacancies tend to be more likely than residential foreclosures. In the case of a vacancy during a recession, the property owner may be forced to sell the property for less than the value in order to keep themselves afloat. These factors contribute to the risk of commercial real estate investment. However, during a boom in the economy, there are many people that want to try their hand at their own business or expand their current business, which opens the door for more tenants for commercial real estate.
One way to invest in commercial real estate without going out and purchasing a property is through something called a REIT (Real Estate Investment Trust). These are traded securities that allow the smaller investor to become a part of a large scale commercial project. Most REITs specialize in certain types of properties such as office buildings or hospitals, which add to their stability. There are several benefits to REITs Ð they are traded like stocks, so you can buy and sell them as you wish; the share price will increase in value as the property value increases; shareholders, in many cases, get a share of the rents generated from the property.
REITs have become very popular in the last few years because they are generally a positive investment. REITs are required by law to distribute 90% of their profits as dividends. These dividends are paid to the share holders. REITs also hold some tax benefits that will save you money on April 15.
There are several methods of investing in commercial real estate, and we have just touched on a few. Like anything else, investing in commercial real estate is not for everyone, but with a little knowledge of the situation and good problem solving skills, this type of investment could be the boost that your finances need to get you where you want to be.
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