INVESTMENT STRATEGY
COMMERCIAL REAL ESTATE
The Advantages of Investing in Commercial Real Estate
WHETHER YOU’RE A SEASONED SINGLE-FAMILY INVESTOR OR NEW TO REAL ESTATE, THERE ARE SEVERAL BENEFITS TO INVESTING IN COMMERCIAL ASSETS RATHER THAN SINGLE-FAMILY REAL ESTATE.
By Paul Mueller
ingle-family residential investing is often viewed as
tenants, each paying rent, compared to a single-tenant SFR. This creates multiple income streams for the investor. Additionally, managing a single multi-unit commercial property can be more cost-effective than managing multiple SFRs, because many of the managerial tasks (e.g., property visits, maintenance supervision, and tenant relations) are centralized in one location, reducing time
This strategy allows an active investor to purchase commercial assets without having to front all the capital themselves. At the same time, it allows passive investors the opportunity to either (1) invest in a commercial asset they otherwise wouldn’t be able to afford or (2) to diversify—to invest in multiple commercial assets, owning many slices of different pies rather than a single pie.
S
a training ground for commercial real estate. It’s easy to see why. Conventional wisdom says to start small with less expensive, more manageable properties. Then, once you gain some experience, build a portfolio, and become financially independent, you can graduate to more expensive, more dynamic commercial assets. So, while it’s not universal, it’s easy to understand why so many investors start in single-family and eventually make the leap to commercial. Whether you’re a seasoned single-family investor or coming cold to commercial real estate, there are several benefits to investing in commercial assets over single-family real estate. POTENTIAL FOR HIGHER RETURNS Commercial properties generally require a higher initial capital investment than single-family homes, but they also come with the potential for higher returns, for a variety of reasons. Office buildings, retail, and industrial/flex space—like multifamily—typically have several
spent and travel expenses. Add to these the fact that a
TAX BENEFITS Tax benefits are among the
landlord can negotiate bulk rates for maintenance, repairs, and service contracts, and the overall operating efficiencies allow the investor to achieve economies of scale, decreasing capital expenditures and maximizing returns while saving the landlord valuable hours.
most appealing characteristics of investing in real estate. In commercial, investors can benefit from numerous tax deductions, including write-offs for depreciation, expenses, and interest payments. These deductions can often offset the income generated from the property, potentially allowing you to report zero or even negative income for tax purposes. Your tax accountant can also use methods like cost segregation, the 1031 exchange, and the Deferred Sales Trust to reduce taxes. SFR investors can also use these methods, but they are more commonly deployed in commercial real estate due
GOING BIGGER VIA SYNDICATION
The best way to combat the biggest knock on commercial investing (i.e., the high financial barrier for entry) is to raise capital from other investors through syndication to fund your deals. In general, syndication is when a group of investors pools their money to make a property purchase.
52 | think realty magazine :: november – december 2023
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