Triple Net Leases. “Triple net leases” mean it is the tenant’s responsibility to pay for realty taxes, insurances, and costs associated with maintenance of a property in return for tenants using a space to operate their business. This reduces outgoing costs after initial investment and a more hands off investment.
Longer Term Tenants. Typical leases for commercial real estate are 5, 10, or even 20 years. Business owners require a certain amount of years to make a return based on their projected business plan. Longer term leases allow for the opportunity for the business owner to obtain well establish d businesses over time while being able to achieve the returns they are projecting. These longer term leases provide a more predictable investment and less turn over in tenancy in comparison to residential investment property with rental terms that could be typically 1 year or less. In commercial leasing, pre-negotiated contractual rental increases adds increased cashflows towards your investment goals as you hold the property and increased value once disposed. In addition, most businesses operate in the public eye and at set hours creating a level of transparency in comparison with some investments we cannot see or touch which is comforting to investors.
You Make Money When You Buy. Commercial real estate is a numbers game. Before committing towards a property, the value and the cash flow can be assessed. Based on that assessment, how much that value is worth to the investor can be determined. There is more control over the investment and the speculation aspect is greatly reduced. No other investment can give you that kind of opportunity.
Having Your Dollar Work Harder For You. Parking your money in the bank may leave limited returns. Depending on your level of risk adversity, investing in commercial real estate can be very rewarding. Let’s say you have 100 dollars to invest. Option 1: I tell you that you can give me $100, and I’ll give you back $120 tomorrow. That would be a return of 20%. You can do this for as many multiples of $100 that you want, but you only can do it once today based on your budget. Option 2: Same deal with me, but now a friend of yours (your lender) tells you they’ll lend you an additional $100 so you can take the deal twice, making $40. For their troubles, they take $10. Do you take option #1, and happily receive your $20 (20%) return? Or do you take the same $100, leverage it, and make $30 on your same initial 100? With commercial real estate there is a level of control in the amount of leverage based on a budget. Investors can choose their
appetite for risk with each investment.
Peddling More Than Just Hours. If you’re a business owner you may experience a capacity of how much can be produced. We only have so many hours in a day, and a certain amount of square footage to operate under. Owning the property in which you operate gives you ability to increase net worth by having a property as an additional asset as well as the business itself. Selling a business and a property that is well equipped for the business can be enticing to some buyers. Having the option to sell only the business and continuing to collect rent as a landlord could go towards retirement income. Commercial properties can have multiple uses depending on landuse zonings and provides the ability for flexible options in changing environments such as changes in business ownership.
The short. Commercial real estate can be a excellent investment because it is long term, has a leveraging aspect, and can be an alternative way to preserve wealth.
LAUREN GIANG | COMMERCIAL REAL ESTATE ASSOCIATE | CENTURY 21 BRAVO REALTY | 403.667.6553