“When it comes to investing, few assets hold as much potential value as commercial real estate. Thanks to real estate investment trusts (REITs), all of the following advantages of buying into commercial real estate can be enjoyed by anyone”
1. Long Lease Terms Mean Continuous Income
Anyone who has rented a home knows that residential leases typically run for about a year or so. Not so much with commercial property. Truth is, a typical lease term in commercial real estate runs for five years, with some lasting even longer.
What does this mean for you as an investor? It essentially equates to several years of consistent revenue.
Compared to residential leases, those who invest in residential property may experience a few months of downtime. Reasons for this may include cleaning, making minor repairs and showing the property every year almost when a resident moves out.
This means long periods of zero income. Happens less frequently on the commercial side.
2. Investing in Commercial Real Estate is now Simple, affordable, and open to everyone
In the past few years, pioneering new platforms such as Fundrise and RichUncles have emerged. They aim to offer the benefits of private market access, but with lower fees that potentially help investors earn better returns.
Leveraging technology and new federal regulations, Fundrise offers investors the first ever diversified commercial real estate investment portfolio. Plus, it is available directly online to anyone in the United States, no matter their net worth.
This is great news for non-accredited investors such as myself.
With direct to investor investment access, the company makes the process of real estate investing more efficient and transparent. Furthermore, they achieve this with lower fees, lower minimums, and potentially higher returns than traditional platforms.
As in investor, I may be willing to bet this. You would be hard-pressed to find an investment expert who doesn’t think commercial real estate is a great investment option. One you should take a much closer look into.
Fundrise and their pioneering new platform could very well be your gateway to a whole new world of real estate investing.
3. Commercial Real Estate Can Diversify Your Portfolio
As essential it is to invest for the future, it is just as important to have a diverse portfolio. Stocks can be profitable and have no doubt made a good number of people overnight riches, but they are also highly notorious and volatile assets. They have, in some cases, very quickly lost investors’ hard-earned money.
Commercial real estate, on the other hand, is a hard asset. I know; I know; property valuations can fluctuate over time just like stocks.
However, the likelihood of commercial properties getting wiped out by a Tsunami remains very unlikely.
Dispersing your total investment dollars over a number of asset classes, especially real estate, can help you create a well-rounded portfolio with less exposure to market risk.
There is the potential for returns from the original investment, resulting from an increase in the property’s value over the period that you as an investor hold it.
In some cases however, properties can also lose value. Even the most disciplined, proven investment strategies can’t ensure permanent gains or increases in value due to outside economic forces that may arise.
A stock market crash, a drastic economic downturn (a la, Covid-19), or, a sharp decline in a particular industrial sector that serves as the lifeline for an entire city for instance, could spell some difficult times for real estate investors during such periods.
The Bottom Line
- Unlike stocks, commercial real estate investments often provide stable cash flows in the form of rental income.
- It is a hard asset that is also a scarce resource. Always has intrinsic value, and usually appreciates in value over time.
- The value of commercial real estate is derived by the larger growth of the economy as a whole.
Historically, direct commercial real estate investment has been out of reach for the everyday investor. This is because investments in commercial real estate are typically dominated by institutional investors.
Why? These projects require millions of dollars in capital and a deep reservoir of expertise for improving and operating a property.
STEP IN – FUNDRISE COMMERCIAL REAL ESTATE INVESTMENTS
Fundrise makes it possible for all investors to invest directly in a diversified portfolio of private market commercial real estate. All with low fees, low minimums and the potential for high returns.
See my full Fundrise Review here.