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What to consider before investing in commercial properties

On Behalf of | Jan 13, 2023 | Business Planning

Investing in commercial real estate may enable you to diversify your portfolio while also positioning yourself for returns that may outperform the stock market. Of course, buying a Tulsa office building or shares of a real estate investment trust does come with risk. Therefore, it’s important to understand the potential pros and cons of such an investment before you hand over your money.

How to acquire commercial real estate

Buying a commercial property directly is similar to buying a home in that you’ll generally do so by obtaining a mortgage. However, you may need to make a larger down payment and need to abide by other requirements that residential lenders may not impose on borrowers. Buying shares of a REIT is similar to buying shares of any other stock in that you generally do so through your broker during typical market hours.

The potential benefits of commercial real estate

The primary benefit of owning a building or investing in a commercial real estate venture is that they can generate revenue in a variety of ways. For instance, a building might appreciate in value while also receiving monthly rent checks from tenants. In some cases, tenants may decide to renovate or upgrade a property at their own expense, which may increase its value without the need for additional capital investment. In addition, since being a landlord generally results in passive income, you can potentially own multiple properties with minimal oversight.

The risks associated with commercial real estate

Investing in commercial real estate may be risky during periods of soft economic conditions. For instance, businesses may not be able to pay their rent or may choose to vacate at the end of a lease in search of a cheaper place to work.

Investing in commercial real estate may not be suitable for everyone. Ideally, you will thoroughly vet an opportunity to acquire a property or to invest in crowdfunding or other sorts of passive venture.