Investing in retail property is an excellent way to build wealth, for even the novice investor. In fact, commercial real estate is one of the wisest investment choices you can make. Here are just a few ways commercial real estate can grow your capital.
1. Commercial retail property provides a stable stream of income
In contrast to residential real estate, commercial properties can offer you longer leases, higher income, and more reliable tenants long-term. “Importantly, the income investors earn from commercial property is stable. Tenants, such as businesses and government, lease buildings generally between 3 to 10 years, sometimes longer. Those long-term leases provide income security. Residential tenants, however, typically sign up for just 6 to 12 months, and in most states they can break that lease with 8 weeks’ notice. Within commercial property’s longer leases are fixed escalations in rent – each year rents are increased at an agreed rate of around 3 to 4.5 per cent. There is also much less chance of a commercial property being damaged by a rogue tenant.” –Christopher Davitt
2. Commercial retail property offers a high return on investment (ROI)
Commercial retail property will offer the investor a much higher return on investment than a residential property can. Here are the basics of ROI: “If you want to invest in commercial real estate, you must know how to calculate the Net Operating Income. Commercial property value is determined by how much an investor is willing to pay for the Net Operating Income. The investor trades their investment dollars for the property’s income. The rate that the income pays back to the investor for their investment is called the return on investment. The sales price is determined by how much the investor is willing to pay for projected Net Operating Income. Value = Net Operating Income/Desired Return.” –Spencer Cullor
3. Investing in retail property fosters relationships with local businesses
Owning retail property puts you in a great place to build positive working relationships with local business owners. These relationships are beneficial to both you and your tenants, helping you both create a mutual partnership that creates an ideal tenant mix in great spaces.
4. Commercial real estate offers a hedge against market fluctuations
One of the great beauties of commercial real estate is its stability. Since your capital is invested in a brick-and-mortar space, there’s a tangibility to it that elevates your dollars beyond the diaphanous nature of stocks and bonds. Commercial real estate is a stable, reliable choice to build your wealth in an unpredictable, fluctuating economy.