Why Invest In Commercial Real Estate In 2021?
June 6, 2022, 5:07 p.m.
Despite last year's pandemic riddled situations throughout, residential real estate maintained an upward trend in terms of everything from price to development, than its commercial counterpart which very much acknowledged a stagnant progress.Both sectors breathe a world of difference between them, and the pandemic, without remorse, made things even worse by widening the gap further.But in spite of all that, the start of 2021 witnessed a gradual resurgence of commercial real estate. Principally, between residential and commercial real estate, the latter has a reputation for being one of the most reliable ways of growing wealth down the line, even though some investors who were more into commercial real estate investing were challenged by COVID-19.That said, our focus should be more on what we've learnt from the pandemic in order to cement our investments in the future, than earning immediate profits.Still unsure about why you should invest in commercial real estate? Don't worry. Read on to get inspired.Why should you invest in commercial real estate in 2021?A figure of speech, yes, and worthy of a place in real estate investing. You see, there are several ways to invest in real estate.There's house flipping, buying real estate-related stocks (more common overseas), renting out properties, and then there's the BRRRR strategy - unique in itself yet not far from the steps that govern house flipping.Is there more? Most significantly, yes, one among many, and that's commercial real estate (CRE) investing.A speculative option but a promising asset class that reaps high rewards if done correctly. Commercial real estate encompasses a resume of property types which haven't been under the investment radar all this time. If this piques your interests, then read on for what you need to know about this asset class. To begin with, you need to understand what exactly qualifies as commercial real estate. Commercial real estate, in essence, is the embodiment of any property designed to be profitable.This may cover every major real estate category one might expect - office buildings, retail stores, warehouses, factories, etc., and not to mention the well-intentioned and specialized properties that ticks off hotels, club houses, cafes, even healthcare facilities and anything else along these lines. Why invest in commercial real estate?Investing in commercial real estate, if you don't know yet, is a smart move and it doesn't really matter if you have years of experience in residential properties or you've never invested a toea in real estate at all.Then comes the question 'why commercial real estate?' Well, here are eight reasons why investing in this property sector can add fuel to your real estate portfolio - if this the path you’ve chosen.1. High income potentialThe key reason why you might want to consider commercial real estate investing is its potential - meaning, for what it's worth, its potential to earn you handsome returns. Now, most often than not, in Port Moresby and PNG as a whole, many commercial buildings are synonymous with huge rents and price tags, yet these indicate a huge potential for nourishing returns on investments, too.Rather than earning just a few kina monthly on a one bedroom apartment or single-family home for that matter, why not opt for a few thousand kinas or more with a genuine commercial real estate commitment?The expanding margins could inspire a growth to your portfolio in a sprightly fashion - that's if you strategically invest all your earnings in new properties as they come in leaps and bounds.2. Less competitionAs evident as ever in PNG's current real estate climate, residential real estate is a highly competitive market with respect to housing prices, although it nearly took on a snail's pace last year. While, commercial real estate, on the other hand, took on a stagnant role.One way of determining whether it’s a good time to invest in commercial real estate or not is to observe the kina volume for commercial real estate in Papua New Guinea. If a lower percentage is evident year over year, this means commercial properties might just be easier to find - especially compared to other assets in the market.3. Endless investment opportunitiesCommercial real estate investments are irrepressible in that they entail investing in a huge shopping mall such as Range View Precinct, or a high-rise office building such as the Noble Center. But if that's too much to handle, you can still settle for small, which would entail investing in warehouses, or apartments and what have you. Flexibility is rife in terms of what you can afford to invest, and where you can invest.4. Minimal turnoverIf you're well versed in every aspect of residential real estate, you'd probably agree with this one. It's not like every apartment and single-family home operate much the same way as commercial real estate, when it comes to investing. But are worlds apart, especially when considering lease agreements. At this point, commercial real estate is susceptible to three year agreements at a minimum, than the typical one year agreement common among apartments and single-family homes.A long-term lease agreement, for the most part, results in a mild turnover (including unnecessary hassles and associated costs) and ensures the property owner receives a steady cash flow.5. More help maintaining (and improving) your propertyThe maintenance, general upkeep and general updates to commercial properties is not something that you, as the owner, will have to do on your own, due to the fact that there's more than one net lease at work here. What this means is that the majority of the property's expenses such as tax, insurance, maintenance costs and even utilities, will be shouldered by your tenants. Normally, the landlord is responsible for these expenses, but who helps make it possible? Yes, the tenant.On that note, you will be privileged to have tenants who are vested in giving the best of their ability to keep the property in shape, than what's commonly standard in residential real estate.This means regular upkeep and leads to an increase in your property's value, overall. It's like a series of positives where one thing leads to another… 6. Less problematic tenantsThis reason calls to mind a residential property's tenants’ behaviour towards paying rents and leaving day: 'are they paying on time?', or 'will they be moving out soon leaving the place in total disarray?' and a host of others like regular tenant disputes and renter complaints.If this sounds familiar, then investing in commercial real estate is the best way forward, because here things are a bit more professional and ordered.Since you're hosting business tenants- those who have a reputation to protect and money on the line - rest assured that maintaining a good rapport with the landlord and following codes of conduct in ensuring the property is in good shape at all times will be at the top of their minds. In turn unnecessary hassles are kept to a minimum.7. Multiple portfolios If you're knee deep in residential real estate, then know this: commercial real estate can be the next best thing in diversifying your real estate portfolio.Since 2020 has taught us that the future is always uncertain, and anything can happen to us in the next minute, hour or day, we should learn from the lessons it brought and strategize towards strengthening our investment goals, and what better way to begin then to spread your investments beyond different assets. 8. Complete proofEventually, commercial real estate, in effect, is a worthwhile investment as we've seen so far.And if that's not enough, a multi-billionaire like Warren Buffet, for instance, has made heaps of fortune in commercial real estate alone, and he’s still doing so.Now that you know what to expect when it comes to investing in commercial real estate, let it not exist as an idle dream, but a work in progress.Final thoughtsRome wasn't built in a day, likewise wealth isn't built overnight. If you want to reach the top, there are endless possibilities as well as failures you have to pass through before you see the light at the end of the tunnel.In real estate, investing in residential properties is half the story. With commercial real estate investing to dip your fingers in is entirely a different story - better yet, the most reliable, efficient and effective way of building wealth.DisclaimerThis article is meant for informational purposes only. Hausples digs into the details of a specific topic and teaches its readers all about how the real estate industry operates. Therefore, not all articles are intended to be construed as financial, or investment advice. Hausples encourages you to reach out for professional help regarding your own real estate situation.