Why Commercial Properties Are A Sound Investment
Commercial properties are real estate assets that are intended to generate a profit, either from capital gains or rental income. They include office buildings, apartment buildings, residential rental housing, and businesses for sale. Investing in commercial properties can offer several benefits for investors, such as:
- Higher rental yields: Commercial properties tend to have higher rental rates than residential properties, as they are leased to businesses that can afford to pay more. According to leading financial institutions, commercial property returns range between 6 – 12% annually, while residential property returns are typically around 1 – 4%.
- Long-term capital appreciation: Commercial properties can increase in value over time, as they are influenced by factors such as supply and demand, location, economic growth, and inflation. An advantage of commercial real estate is that it can offset the long-term impact of inflation, as property rents can be adjusted with inflation.
- Diversification of investment portfolio: Commercial real estate price movements tend to have a low level of correlation with traditional asset classes like stocks and bonds. This means that investing in commercial properties can reduce the overall risk and volatility of an investment portfolio.
- Tax benefits: Commercial properties can offer tax advantages for investors, such as depreciation deductions, interest deductions, and capital gains tax exemptions. These tax benefits can lower the taxable income and increase the cash flow of investors.
- Control over property management: Commercial properties give investors more control over how they manage their assets, as they can choose the tenants, negotiate the lease terms, improve the property condition, and increase the property value. Investors can also leverage their expertise and network to find the best deals and opportunities in the market.
Property Types
There are different types of commercial properties that investors can choose from, depending on their goals, budget, and risk tolerance:
| Property Type | Description | Benefits | Risks |
|---|---|---|---|
| Office buildings | Buildings that are used for office purposes by businesses or professionals | Stable income, long-term leases, high-quality tenants | High maintenance costs, vacancy risk, market competition |
| Apartment buildings | Buildings that contain multiple residential units for rent | High demand, consistent cash flow, tax benefits | High capital requirements, tenant turnover, management issues |
| Residential rental housing | Single-family or multi-family homes that are rented to tenants | Lower entry cost, easier financing, appreciation potential | Lower rental yields, higher vacancy rates, maintenance costs |
| Businesses for sale | Businesses that are sold as a whole or in part to investors | Existing customer base, established operations, goodwill value | High due diligence, legal issues, operational challenges |
Resources
If you are interested in investing in commercial properties in Canada, you can visit the following websites for more information:
- crea.ca: The Canadian Real Estate Association website that provides market statistics, research reports, and consumer information on commercial real estate.
- royallepage.ca: The Royal LePage website that offers listings of commercial properties for sale or lease across Canada. You can also find a Royal LePage agent who specializes in commercial real estate.
