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Why Should You Invest in Commercial Real Estate?

IMAGE CREDIT: Pixabay
IMAGE CREDIT: Pixabay

Commercial real estate investments have doubled in Edmonton for the first quarter of 2017. This mixture of capital from funds and individual investors proves how attractive investing in real estate still is for savvy investors. Below are some of the main reasons sophisticated investors are choosing commercial real estate now.

Tangible Assets

When you invest in real estate, you actually own an asset. If you were to invest in the stock of a company and they go belly up, you cannot sell your stock or really cut your losses. You just lose your investment.

With commercial real estate, you own an asset that can be sold at any time. The ability to actually touch and feel when you’re investing in can be rather attractive. While there may be ups and downs in the value of the building, the property will remain as an asset.

Excellent Returns

Many investors choose commercial real estate because of the returns. Real estate has the ability to yield very high returns over time. The NCREIF reported a 12.7% annual return average over a large pool of commercial real estate properties in 2015. Compare this to the Dow 30, S&P 500 and Russell 2000, which didn’t come close to such a large return. Even over the past 15 years, the NCREIF reported an 8.8% annual return for those investing in real estate.

Upside of Equity

With real estate, investors gain additional returns from growth equity, in addition to income from rents. As the property appreciates in value, the investment returns increase. Reaping the rewards from leasing the building and profiting from the simultaneous rise in gives an investor an additional reason to choose commercial real estate. Some even find opportunity in purchasing, renovating or repositioning and flipping commercial buildings for a profit.

Principal Paydown

There are different strategies on how an investor chooses to invest in commercial real estate. If you choose to leverage the use of a mortgage to invest in commercial property, investors can use lease payments to pay down the mortgage balance. This increases equity and liquidity, which may also be leveraged to expand a portfolio. Alternatively, investors can partner up with peers or seek alternative methods to raise capital.

Summary

In summary, there are several drivers behind the current move to invest in commercial real estate in Canada. Historically, it has proven to be a good investment, while offering security, and the ability to leverage capital to accelerate portfolio growth.

Stephen Cobb says:
4 months ago / Reply

Good work Richard. Hopefully this reaches a wider audience for investing. All the best, Stephen

Life doesn't get easier or more forgiving, we get stronger and more resilient.
- Steve Maraboli
The greatest glory in living lies not in never falling, but in rising every time we fall.
- Nelson Mandela
Life doesn’t get easier or more forgiving, we get stronger and more resilient.
- Steve Maraboli
The greatest glory in living lies not in never falling, but in rising every time we fall.
- Nelson Mandela