Taking advantage of compound interest is an effective way to build generational wealth. Investing in good growth stock mutual funds can add diversity and stability to your portfolio. But investing in real estate can do the same thing with, arguably, a little more fun. The fun does not come without the possibility of loss, but investing always comes with some risk.
Your money should always be working for you, which involves risk. A simple savings account might seem much safer. But by investing in stocks, bonds, real estate, or other assets, you can earn higher returns instead of simply saving in a low-interest savings account. There are always opportunities to add more diversity to your portfolio to decrease risk, but you should do your due diligence to research and learn before investing in anything.
A well-diversified investment portfolio, combined with a long-term perspective, can lead to financial stability and security. One opportunity to consider is investing in commercial real estate. Commercial real estate refers to properties used for business purposes, such as office buildings, retail spaces, warehouses, and multifamily apartment buildings.
There are several options within this space, but it requires significant upfront capital and expert knowledge in the industry. Once your net worth has reached a certain level, here are three top reasons to consider investing in commercial real estate to boost your wealth-building momentum.
Expand Your Network
Investing in real estate, in general, can help you expand your network in many ways. Buying and managing these properties requires you to work with professionals such as real estate agents, inspectors, contractors, and property managers. Building these relationships can lead to new connections and potential business opportunities.
If you’re already investing in residential real estate, you may already have a network. But investing in commercial properties can help expand your network and your reach, helping you uncover new business opportunities.
Adding commercial real estate to your portfolio can also lead to more exposure and credibility within your community. As a successful real estate investor, you may become known as a trusted resource for real estate advice and information, leading to new relationships and opportunities. It can provide access to a network of like-minded individuals of a similar caliber, including other real estate investors and industry professionals.
By joining local real estate investment clubs or attending industry events, you can learn from other commercial investors, share experiences, and build lasting relationships. Your network should always include a mentor who can offer wise counsel and steer you in the right direction. Your network can provide recommendations for business connections and help with details like elevator inspections and property managers. The larger your investment, the greater your reliance on your research and network.
Higher Income Potential
Commercial real estate can lead to higher income in several ways. Commercial properties typically generate higher rental income than residential properties. The difference is due to the higher demand for commercial space, and the higher rents businesses are willing to pay. This results in a higher yield, which leads to increased overall income for you and your family.
Commercial properties also tend to have longer lease terms than residential properties, providing a more stable source of income for you. Investors can better plan and predict their cash flow because of this stability, leading to a potentially higher net worth. Commercial real estate also offers the potential for capital appreciation, which is the increase in the value of the property over time.
As the economy grows and property values increase, so does the value of your commercial real estate investment. This type of investing can also provide opportunities for tax benefits, such as depreciation and deductions for operating expenses, which can reduce your tax liability.
Inflation Protection
Although the inflation rate is no longer at its peak, it’s still hovering at around 6.5 percent. Inflation is a concern for investors because it can contribute to the consumption of the purchasing power of money over time. As prices for goods and services rise, the value of cash decreases, making it harder to purchase the same goods and services in the future.
Inflation can hurt the returns of investments such as bonds, which typically offer a fixed rate and may not keep up with inflated prices. Inflation can also impact the stock market, as rising prices can lead to decreased consumer spending and a slowing economy. This can lead to lower corporate profits, impacting the value of stocks.
However, investments like real estate and commodities have the potential to perform well during periods of inflation, helping you benefit from rising prices. You should consider the potential impact of inflation on your portfolio and diversify to include a mix of assets. Commercial properties typically have long-term leases, allowing you to adjust the rent to keep pace with inflation. This means that as the cost of goods and services rises, the rent collected on the commercial property also increases.
Additionally, the value of the properties may increase, providing more protection for your money while it works hard for you. This stability can be especially useful during periods of high inflation, when the value of stocks or bonds may be much more volatile. Commercial investing can also provide access to several financing options, such as mortgages, which can help protect against inflation by leveraging other people’s money to purchase properties.
Final Thoughts
You need a good investment strategy if you want to continue to build wealth. The decisions you make now can affect your family for generations to come. It’s essential to research, learn, and diversify as an investor. Commercial real estate is a great way to diversify your portfolio.
It can help you expand your wealth-building network, earn a higher income, and protect your money against inflation. Your number one wealth-building tool is your income, and commercial real estate is a very lucrative way to use it.
