How does commercial real estate add value to an investor’s portfolio?

Many people limit their investment scope to single residential properties when considering property investment. A potential huge opportunity is missed by focusing solely on residential property investments. Even though the risks seem greater than those of residential properties, commercial real estate offers a much greater income and equity potential.

In the same way, commercial real estate Australia has always been known for its stability, which is why investors are increasingly drawn to it. Commercial Real Estate (CRE) investments are becoming more affordable and less time-consuming with products like fractional ownership and REITs. The rental income generated by CRE can provide a steady source of income. However, experts advise investors to thoroughly examine their financial health, investment goals, risk-bearing capacity, and profit forecast before investing.

Commercial Real Estate as Value Addition to an investor’s portfolio: Cash flow from multiple sources:

In real estate, vacancy is an invariable part of revenue, so this can be extremely helpful to maintain steady revenues. CRE properties typically generate multiple income streams from a single asset. However, a vacant single-family rental property does not generate income until a new tenant moves in.

Tax Benefit

A commercial real estate investment can provide tax benefits that may not be available with other types of investments. Investors can take advantage of accelerated depreciation by implementing procedures such as Cost Segregation analysis.

Higher Rental Income:

The rental yield of commercial properties is higher than that of residential properties. The rental yields from commercial properties are hands down superior to those from residential properties. Commercial properties usually yield double digits. The greatest advantage of investing in commercial real estate is this.

Diversification of Assets

If the market shows signs of a correction or slowdown, investing in different types of CRE or even a diversified REIT can reduce your exposure to a single industry.

Investing in a diversified portfolio minimizes risk. A variety of commercial properties are available for investment, including self-storage facilities, retail centres, industrial buildings, apartments, mobile home communities, hotels, entertainment venues, and offices.

Market diversification:

In CRE, asset diversification is not the only way to hedge risk.  It is common for commercial portfolios to be spread across different markets. Having this capability allows investors to maintain a steady performance or to benefit from higher demand in certain markets.

Capital-preserving physical assets:

As an asset class, commercial real estate is a tangible investment which makes it one of the most appealing. As far as the value of a building is concerned, it is determined largely by its condition, its location, and the credibility of the tenants in place – factors that are not expected to fluctuate that much.

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