Real Estate Is A Tangible Asset
Anyone who has invested in the stock market (especially during the first dot.com bust) knows that the value of money invested in stocks can not only decrease but can lose all of its value. Stocks represent an ownership interest in a publicly-traded company. They are not tangible, physical assets and serve no utility other than as a store of value and a liquid security instrument. Real estate on the other hand, is a tangible asset that has inherent value. You can physically modify a property to improve its value or change the tenants to improve your return on investment. If something happens to a structure on the property insurance will cover rebuilding the structure and the land still has value.
For some investors, that is more reassuring than buying shares in companies that may not survive. Many small business owners who purchase the building in which they operate discover that when they go to sell the business, the real estate is worth substantially more than the business. It is worth mentioning that real estate does have risks that stocks and bonds do not. A vacant property can end up costing an investor a lot of money in expenses with no return while the property is vacant. Also, real estate is a fairly illiquid asset. That makes real estate an investment that is best for those who are in for the long term rather than those who may need their money on short notice.
Leverage
Not only is commercial real estate likely to appreciate over time, but most owners carry mortgages on their property. This allows them to leverage the money they have to invest while also building equity in the property.
Take for example an investor who purchases a property with a 20% down payment and a mortgage for the other 80%. The property only has to appreciate 20% in value for the money initially invested to have a return of 100%. That leverage does come with additional risk. If the owner can’t make mortgage payments, the owner could lose the property through foreclosure. It is critical not to over leverage and to ensure that there is enough cash flow from rents to service the monthly mortgage payments.
It Can Be Used as A Hedge Against Inflation
Another advantage of commercial real estate is that it can offset the long-term impact of inflation. Rents can be raised in order to offset inflation. With stocks and bonds, inflation can cause returns to diminish.
While getting a loan on an investment property can be challenging in the current environment, crowdfunding provides an avenue for even the smallest investor to invest in commercial real estate. Crowdfunding is a method for raising money for businesses and an easier way to access such ventures for investors. It utilizes the Internet and social media outlets to reach an audience of potential investors. The idea behind crowdfunding is that many people are willing to invest a small amount, and when they do, large sums of money can be raised quite quickly.
For those looking to purchase commercial real estate in which to operate their own business, loans are still readily available. Through the SBA’s 504 program owner occupiers can finance up to 90% of their purchase at attractive rates.
Here at Mobiliti CRE we assist both small and large investors as well as owner occupiers with commercial real estate purchases. Do not hesitate to reach out to us at 813-300-2227 or via email at pam@mobiliticre.com
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