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Commercial real estate is distinct from residential real estate. It includes multi-family properties containing five or more units, office buildings, retail buildings, industrial properties, hotels, self-storage facilities, data centers, and more.

Investing in commercial real estate can bring several benefits, including the generation of passive income, portfolio diversification, and capital appreciation. There can also be significant advantages in terms of taxation.

Benefit One: Higher Profit

Typically, commercial real estate generates more revenue than residential properties. This is, in part, due to the operational efficiencies inherent in owning larger commercial units over multiple smaller residential properties.

Benefit Two: Less Competition

Commercial real estate experts like Pierre-Mary Bachelet know that there is usually significantly less competition for commercial real estate compared to residential real estate, as fewer people are interested in purchasing assets in this market. Furthermore, it’s common for commercial buildings to not be listed on the open market at all but instead be traded via off-market deals where there is little – or no – other competition.

Benefit Three: Tax Benefits

There are many tax benefits that come with investing in commercial real estate. For example, investors can offset depreciation against their passive income. This effectively offsets the costs to the owner of maintaining the property over time and is a major tax incentive. Recently, commercial property owners have been able to take advantage of accelerated depreciation which, in many cases, renders the first few years of profits tax free.

Benefit Four: Longer Leases

Commercial property tends to be leased for a period of five years at the minimum, with some leases having durations of 30 years or more. This provides predictability and stability to the commercial property owner.

Pierre-Mary Bachelet - Potential Drawbacks of Purchasing Commercial Real Estate

Benefit Five: A Consistent Cash Flow

As well as having long-term leases, many commercial properties are leased on a triple-net basis, which means that all building and operational costs are passed on to the tenant. For this reason, investing in commercial real estate can generate a more reliable passive income than most other asset classes.

Benefit Six: Property Appreciation

Most commercial real estate will appreciate over time, which means that owners will benefit from a higher property value if they choose to refinance or sell.

Take a look at the embedded PDF for information on how to buy a commercial property.