If you don’t know the history of McDonald’s it might surprise you to hear that they weren’t just in the business of selling burgers. They were also in the real estate business.
That’s right. McDonald’s made money and continue to make money off of real estate. They purchase land for McDonald’s franchises and rent it to the franchise owners through long-term contracts.
While the internet has opened a whole new world for companies to connect with customers at home, there will always be businesses that need office space and retail stores and because of that there will always be demand for commercial real estate, regardless of how the way we do business changes.
Today I have 3 specific reasons why investing in commercial property is a good idea.
Space for your Business
While there are many options to lease commercial real estate for your business, you might want to consider purchasing the property so that you can gain exposure to price appreciation or rental income down the road. This strategy works better for established businesses versus newer businesses, because the more established you are the easier it will be to take on the risk of owning the property yourself.
Kim from Eyes on the Dollar, a fellow personal finance blogger and friend, purchased the building that housed her optometry practice. She makes some great points in her post, including the tax benefits of such a purchase:
One thing I didn’t really understand or ever think about before owning a brick and mortar business was that you can own your own building and still pay yourself rent. It is a good way to take income out of the business without having it taxed as part of your salary. In reality, smart business owners would like their net income to be zero or even show a loss.
That doesn’t mean you aren’t making money. It just means that you are running as many expenses as you can through the business so that it helps with income taxes.
This purchase worked out for her and her business and will be a big win over time. If you have a brick and mortar business, purchasing the building is definitely something to look into.
You want to Expand Your Investments Beyond Residential Real Estate
Residential real estate is extremely popular with real estate investors. It’s almost always less expensive than commercial property, there’s a ton of resources on the topic, and it’s fairly straightforward. Renting out a basement or extra bedroom can be a quick way to produce cash flow and can take little additional effort.
While renting out residential real estate can be a good investment, you might want to diversify and move beyond simply renting out homes, apartments, and condos. That’s where commercial real estate investing can come in.
Before diving into commercial real estate it’s important to factor in the risks. The cost of having a large commercial space sit empty for a prolonged period of time is going to cost more than having a prolonged vacancy in a condo. With that being said, commercial real estate can provide consistent income if you get the right customer in your space.
There’s less investors when it comes to commercial real estate and the stakes are higher than residential real estate. The rewards are also higher, though, so investing in commercial real estate is something to keep in mind.
You want a more Hands-On Approach than Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts, or REITs, are a great way to get exposure to the real estate market without actually having to buy, maintain, and manage property yourself. REITs are also much more liquid than physically owning real estate.
With that being said, some investors like to take a hands-on approach to real estate investing. Purchasing your own commercial property gives you complete control over the property and gives you a greater potential for profits. You can also put as much or as little effort into the commercial property you own, as there will always be management and maintenance companies willing to take on work you’d rather outsource than do yourself.
The main point here is that commercial real estate is something to consider adding to your portfolio. Now might not be the right time, but you may find yourself in a position down the road where you have the opportunity to invest in commercial real estate. Especially if it’s a building you are renting from, you should seriously consider making the investment.
Photo by Matthew Rutledge
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