Why Invest in Commercial Real Estate?
Updated: May 10, 2020
1. Growth Capacity
Commercial real estate allows investors to scale up substantially faster than other types of investments whether they be in stocks, bonds, or residential real estate.
Don't have significant amounts of capital lying around to put into property? Not a problem!
One of the best ways to invest in commercial real estate, called syndication, is something that we will delve deeper into in the near future as part of this commercial real estate series.
Syndication is a great way for people who bring knowledge and skills to the table but lack the deep pockets sometimes necessary when taking down massive deals.
Another great reason to get invested in commercial real estate is the benefit of passivity that comes with commercial properties that simply are not present with residential properties.
Things like triple net leases (NNN) and more negotiable structuring of leases allow landlords to be much more hands-off than on a residential property. No more 2 am calls about leaking toilets or when a lightbulb goes out (hopefully)!
With commercial real estate comes commercial tenants. This means they are most likely going to be businesses, so fewer emotions are coming to the table than a group of people wanting to rent a house together. It is all about the numbers at the end of the day.
3. Economies of Scale
Possibly the greatest benefit of investing in commercial real estate is the economies of scale that can be attained through it.
Let's compare an investment portfolio comprised of 150 single-family residential houses that are rented out across a city to a 150 unit multifamily apartment building in the same city. When a bad storm comes through and damages rooftops across the city, which investor is going to have a worse day?
It's going to be a lot more expensive to replace 150 separate roofs across a city over the course of weeks than it would be to have a commercial roofing company come out and replace the one roof of the commercial building that covers all 150 units.
This is my favorite example to use when illustrating the reduction in cost per unit that comes with commercial investing, but there are plenty more.
4. Decreased Risk
When compared to single-tenant residential properties, there is a significantly lower vacancy risk when the number of potential tenants in one property is increased. If you have a 10 tenant building and one space is vacant, you are still 90% occupied. If you have a single tenant residential rental property without a tenant, you are at 0% occupancy.
As always, let me know below what you see as the biggest benefit of investing in commercial real estate!
Matt Moreland, Realtor® is a real estate agent serving the Lubbock, Texas, and the South Plains. After graduating with a Bachelor of Business Administration in Finance with a concentration in real estate from Texas Tech University, he began practicing real estate full time at McDougal Realtors in Lubbock, Texas. Matt enjoys spending time with his wife and their dog. Some of his hobbies include investing in real estate, elk hunting, backpacking, barbecuing, and playing guitar. To schedule a commitment-free consultation please call 469-744-3610 or fill out this form to get started.