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Commercial Real Estate Investments: Balancing The Risks and Rewards
Nicholas Burrus
January 26, 2024
Presented by Astra Properties LLC
Commercial Real Estate Investments: Balancing The Risks and Rewards
By Nicholas Burrus · 01/26/24
Thanks for tuning in to today’s read! Read time for today is roughly 5 mins.
Top of the morning ⚡
Let’s end the week off with some more nuggets to keep your mind fresh for the weekend.
We’re going to start diving into commercial real estate, and the benefits it can bring.
Is it worth investing your hard-earned 💰 in commercial real estate?
Let’s find out!
Cheers!
The Risks and Rewards of Commercial Real Estate Investing 💸
Enjoy the rewards but know the risks!
Residential real estate is often the first thing that comes to mind when investing in real estate.
But commercial real estate can be just as, if not more profitable.
Commercial real estate is a property used mainly for business. There are 4 types of commercial real estate:
Offices
Industrial buildings
Multifamily complexes
Retail spaces
Like any investment, commercial real estate has its risks and rewards.
What are the advantages of investing in commercial real estate?
Longer lease
Businesses often prefer a secure location for an extended occupancy. Many will rent out a space for at least 5 years and up to 10-20 years.
Consistent cash flow
Predictability is never a bad thing in real estate!
A longer lease means you can look forward to predictable cash flow and consistent returns for years to come.
You can use your commercial property to take out loans and fund your other investments
A longer lease, predictable rent payments, and appreciation lets you build equity over time. This leads to long-term financial growth
Increasing value
Most commercial properties rise in value over time.
You can benefit from this appreciation if you decide to sell the property in the future
Being strategic with property management can boost the value of a commercial space
Continuous improvements and upgrades will increase the property’s value over time
Expand your portfolio
Commercial real estate is a valuable addition to your investment portfolio. It helps spread risk and boosts your portfolio stability.
It’s also a great alternative to traditional stocks and bonds investments.
Tax benefits
Who doesn’t love tax breaks?
Buying and maintaining a commercial space has a boatload of tax deductions for property expenses, depreciation, and loan interest.
What are the disadvantages of investing in commercial real estate?
It’s expensive
Buying a commercial building is more costly than a residential property - that’s a given.
Most investors have to pool funds to buy a commercial space
If you can’t find investors, you have to take out a loan to buy a commercial property
The loan or debt might become a burden if you rely heavily on borrowed funds
The market is volatile
Commercial properties can increase and decrease in value - depending on the market. During economic downturns, businesses will struggle. This can lead to lower rental income and higher vacancies.
Increasing interest rates
Taking out a loan to buy a commercial property means dealing with variable interest rates. If the interest rates rise, the cost of borrowing will increase too.
This puts pressure on your cash flow.
Hire a team, maybe?
Property management challenges
It takes time, money, and effort to manage a commercial property. Part of your responsibilities include:
Looking for tenants
Maintaining relationships with tenants
Solving maintenance issues and repairs
Complying with regulations
Dealing with taxes, changing zoning laws, building codes, and regulations to acquire permits
Hiring a property management team will take these tasks off your plate.
Maintaining a real estate team may cost $$$, but that’s money well spent if it means having more time to focus on growing your wealth and getting the IRS off your back 💸
Our advice for successful commercial real estate investing
Diversify your portfolio: This is one way to reduce the risks of investing in commercial real estate.
If you only depend on one property with a single tenant to cover the mortgage payments, you could face financial problems when the tenant leaves. We suggest:
- Getting a property with multiple tenants
- Building multiple streams of income
- Investing in other real estate models like real estate investment trusts (REITs) and stocks
Expand your network! Go out there and connect with fellow investors, contractors, agents, and companies. Your network can give you good advice and reliable service for building upgrades and maintenance.
The final tip is an oldie but still a goodie: do your due diligence.
Roll up your sleeves, do your research, crunch the numbers before diving into commercial real estate. There is no short cut for due diligence.
PS: Don’t forget a contingecy plan! Build a weatherproof plan B and C for worst-case scenarios.
💫 What Else is Poppin? 💫
Your Child's Next Playmate? An AI Toy Powered By ChatGPT 🤖
… Might replace tutors too
AI is not only taking over multiple industries; it can also be your child’s playmate, companion, and… tutor?
Startups are developing AI-powered “robotic companions” that provide interactive and educational experiences for children.
Using OpenAI’s generative AI technology, these toys can hold full conversations with kids, answer questions, solve math problems, and do their homework 🤯
Crazy!
The concept is further explored in this YouTube video:
Though the academic capabilities are impressive, these hi-tech toys have the same weakness as ChatGPT - providing inaccurate responses.
Some toys, like Moxie, can even make up answers, although the makers insist that these “hallucinations” are not a bug but a feature.
Experts say providing wrong answers can have serious repercussions on children's education. They create misconceptions that are hard to correct.
There's also the question of privacy.
Many AI toys eavesdrop and record conversations but have weak security features. Mattel's Hello Barbie and My Friend Cayla - two discontinued AI toys - have stored audio files that can be hacked via Wi-Fi.
The technology is getting better, and more security features are added to these toys, but still, none of the startups could guarantee 100% security for children's data.
Catch the latest episode of the AstraCAST podcast!
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You can catch me and Marcos on YouTube, and Spotify! Catch up with us as we bring on guests from all parts of the industry covering everything from real estate, personal development, to growing a business through acquisitions, rentals, and renovations.
Don’t be shy, check us out here!
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