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Top Benefits of Commercial Real Estate

Mar 19, 2015

Accredited investors have been grateful for the commercial real estate opportunities that come in their way. This investment serves as an extraordinary asset which behaves differently from a lot of other investment classes such as bonds or stocks. In general, a part of the investment capital of major investment organizations is allocated to commercial real estate. This investment offers investors a lot of benefits. However, crowd funding allows individual investors to access these opportunities. If you are in the market to buy profitable properties, consider knowing the benefits of commercial real estate.

Cash Flow

Investments are capable of producing current income and value changes or appreciation. Usually, better crowd funding companies concentrate on properties that produce current income as such stable income can offer protection during financial market stress. Real estate is not the same as stocks in this aspect where the income part tends to account for a bigger portion of the total returns than it takes for stocks.

Low Volatility

Commercial real estate’s income component helps in tempering its volatility. Usually commercial real estate is less pronounced. In general, rental terms help in mitigating fluctuations of the economy and their effects on income. Over time, this real estate has displayed great stability.

Real Estate is a Valuable Asset

Real estate possesses intrinsic value. Aside from the structure, the land also has value. Well-selected properties can offer some protection that some value might be kept even if a property will not achieve its full potential.

Typically, hard assets like real estate are strong inflation hedge. They are valued as they can be utilized for producing other services or goods. In such aspects, real estate is considered a safe value store. Lending institutions like banks have the willingness to lend against real estate.

Possible Hedge against Inflation

Usually, commercial real estate has been found to be highly correlated to inflation. As prices of services and goods rise in the broader economy, this can benefit real estate as increasing wages and profits increase the amount which tenants want to pay for a space. Also, such factors contribute to increasing construction costs, thus replacement values are expected to increase resulting in higher commercial real estate prices.

Diversification

There are lower return correlations of commercial real estate than other asset classes. A stock market decline doesn’t have to correlate to a real estate drop. Commercial real estate is a game that investors have to play for a long term. Factors such as development activity sensitivity and extended lease terms offer real estate the ability to minimize volatility of portfolio through diversification.

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