How to Generate Profit Through Commercial Real Estate
If you’re looking for a new way to generate income, be sure to consider commercial real estate. Although it’s not suited for everyone, owning and leasing property can be an excellent source of income. Is this type of investment right for you? Below are some basics you should know.
Types of Rental Property
The first, and perhaps most obvious way of making money from investment real estate is through the rent you charge. While apartments and other housing can generate income this way, that’s not the only type of property you should consider.
Office buildings can be excellent investment properties. Startup companies, accountants, lawyers, and more need this office space to operate their businesses. Furthermore, you can invest in industrial properties like warehouses. Another type of property you can lease is retail space for stores and other consumer-facing businesses. As opposed to residential real estate, these kinds of properties have longer lease terms, which means less looking for tenants.
While charging rent is a straightforward way to make money from commercial real estate, it’s not the only way. If the property gains value over the time you own it, you can make significant money from the appreciation. Because it is a scare asset that you cannot just create, it often becomes more valuable as the population around it expands.
Beware of relying on this to make money, however. There’s no guarantee that merely owning property for a long time will mean making money from it. Sometimes, real estate can be worth less over time, or a recession can make the market tough for sellers.
The third way that commercial real estate can generate income is through a value-add approach. This is similar to appreciation in that the property becomes worth more over time. However, the value-add approach is more active than hoping for a good market.
You can make improvements to the structure that make it more appealing to potential tenants. For example, you can invest in making apartments look nicer and charge higher rent. If you own retail space, you can upgrade the parking lot or storefront.
Better Than Stocks
Much like putting your money in the stock market, investing in commercial real estate can be a bit of a gamble. However, some people may consider real estate a better bet because there is intrinsic, concrete value in owning a plot of land and a building. Furthermore, it is less volatile than the stock market can be and real estate often grows with the overall economy.