In the words of Andrew Carnegie, the business magnate who led the expansion of the American steel industry in the late 19th century, “Ninety percent of all millionaires become so through owning [commercial] real estate. More money has been made in [commercial] real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in [commercial] real estate.”
While the economy may have evolved since the late 19th century, Carnegie’s sentiment still holds true today, because in answer to the question, “Is commercial real estate a good investment?” – we say yes! There are a number of advantages to owning commercial real estate, especially in active markets like Colorado. In the following article we will outline some of the pros and cons to a commercial real estate investment.
Stable Business Model. Investing in commercial real estate is a stable business model. The property is used to provide rental office or retail space to clients. The demand for this type of service can be characterized as strong and ongoing. commercial real estate is based on strong, perpetual demand. Because of this it is a safer investment than some stocks or bonds which are based on more complex business models and often times luxury goods which may not always have a strong demand for them.
Income Generation. Traditionally, commercial real estate offers one of the highest returns of any type of investment, and the income potential is not based on selling the asset to receive it. With commercial real estate, the income is generated by the cash flow of the property and can provide closer to 10%+ in pay out, where stocks may only provide a 3% return.
Property Appreciation. One of the amazing things about commercial property is its ability to appreciate over time, maximizing the investment’s ability to build wealth. Commercial real estate investments can be a great way to hedge against inflation, especially when in comparison to other investments like stocks. Since rent increases with inflation, and the income generating value of commercial real estate is tied to rent the value of the property increases alongside inflation.
Investing in Commercial Real Estate for Your Business. Outside of the benefits outlined below, owning the commercial property for your business allows you to take control of all upgrades and renovations to improve how your business operates. Owning your business’s real estate is a fixed cost, so you don’t have to worry about rising rents.
Commitment and Service. Owning commercial property comes with a commitment to serve your tenants and to ensure that the building is running well. Tenants can run into issues, maintenance will need to be kept up with, and emergencies can occur. When deciding if investing in commercial real estate is good for you, it is important to consider the level of commitment you can make to your tenants and maintaining the property. Will you manage this yourself, or bring in a property management firm? This is best outlined in advance of an investment.
Finding Tenants. If the income generation ability of your commercial investment is based on tenancy and rent payments, considering how you will find tenants is very important. Fortunately, commercial brokers provide landlord representation services to help identify occupants for your building, so this process does not need to be completed on your own.
If you’re still wondering if commercial real estate is a good investment, we invite you to speak to one of our commercial real estate agents to identify the best strategy to wealth for you. Give Transworld Commercial Real Estate a call today at 720-574-2953 or visit transworldcre.com for more information.
Rachael Holstein is the Marketing Manager for Transworld Commercial Real Estate, a full service commercial real estate firm in Denver, Colorado. Her work experience has been largely focused on business development and marketing in business brokerage, finance, architecture, property management, and information technology. A long time resident of Cleveland, Ohio, she attained her undergrad from John Carroll University and her Master’s Degree from Cleveland State University. In 2013, she relocated to Denver with her husband, Joe, and her furry companions to explore the mile high lifestyle! Visit transworldcre.com for more information.