Commercial Real Estate gives you higher returns on your investment
A highly secure investment that has no risk, and brings good results is a mythical thing, more like a unicorn, something that does not exist. Investment always and will always involve a certain amount of risk.
When seasoned investors think of a well-diversified portfolio, they often think of stocks, mutual funds, and ETFs. Diversification in your investment is very important, and savvy investors understand its importance. So when one investment class isn’t performing well in the market, you can still gain from the other. It’s a balancing act that mainly protects you against losses. A truly diversified portfolio goes beyond investing in stocks and bonds and also includes investing in an asset called commercial property investment.
Thanks to its stable nature, commercial real estate investment is always considered a safe avenue to invest in and always brings a good ROI, despite market fluctuation. Commercial investment is also an asset class that appreciates and provides a regular flow of free cash.
In the last decade, our economy was busy emerging as the fastest growing economy across the globe, thanks to the economic bull run in the country. Currently, South Asia is attracting the global spotlight, and in our country, people have started to understand the importance of commercial property investment. Both buyers and investors in the country are learning about the importance of this asset class and how it can help them outmaneuver their peers in terms of higher ROIs.
Let’s dive a bit deeper into understanding why commercial property investment is good for your investment portfolio:
Commercial property is an exciting investment option for many people because it is a tangible asset. Investors can see and touch this asset, which is also one reason why this investment class is gaining popularity.
You can visit this property to learn more about its condition, location, size, and other factors that can impact it and affect your earnings. Further, if anything happens to the structure standing on this property, the land will remain intact for rebuilding or sale.
Commercial property investment can be reassuring for some who wish to not take the risk of buying shares in a company that may not survive. But this investment class is not entirely free of threats. It at times poses risks that other investment options like stocks and bonds do not pose. For instance, if the property remains unoccupied for a long time, it can cost the investor money over time. In addition to this, commercial property investment is a relatively illiquid asset. This makes CRE perfect for those who are looking for greater returns in the long term but disqualifies it as an investment option for those who need money on short notice.
Any discussion about commercial real estate investment in India is incomplete without the mention of the tax benefits offered to individuals owning CRE. When you invest in stocks and bonds, you are required to set aside a portion of your earnings to pay capital gains taxes. Avoiding these taxes is also very tough. Unless your investment is part of a qualified plan or a retirement account, ways to avoid these taxes are slim to none.
On the other hand, the ways to reduce or eliminate capital gains in commercial real estate are numerous. If you invested in well-located commercial real estate property, the value of this property would go up over time. But for tax purposes, you can always depreciate the value of the property and reduce your yearly taxable income. The final result of this act would be that you are depreciating the value of the property for tax purposes and appreciating the value of your investment. Not many investment asset classes offer this advantage.
Greater returns over time
It is a common understanding among investors that it is better to hold on to your investment asset for a long time than to jump in and chase gains very rapidly. The commercial investment aligns well with this thought, as this investment asset can provide solid and predictable returns over time. Commercial real estate investors generally receive steady returns, with the profits typically distributed annually, quarterly, or monthly at times. Due to high occupancies and predictable rents, it offers the steady cash flow that most investors are looking for. This type of steady return adds stability to your investment portfolio.
In addition to all this, commercial property investment can also counterbalance the long-term impact of inflation. Since property rents can be adjusted according to inflation, CRE can also act as an inflation hedge. The case is entirely different with stocks and bonds. With these investment assets, inflation can bring diminishing returns. This makes commercial property investment a preferred choice among investors looking for superior investment returns.