With a range of opportunities for seasoned and new investors, commercial real estate is a robust and sensible way to diversify your investment portfolio, generate income, and build financial freedom.
From Texas’s bustling cities to its expanding suburbs, the commercial real estate market offers investing opportunities in office space, new development, industrial flex space, warehouse space, mixed-use properties, and more.
There is a reason real estate is a significant source of generational wealth. Read on to learn the benefits of investing in commercial real estate.
Cash flow is one of the most significant commercial real estate ownership benefits. Commercial properties often have longer lease durations and more operating costs passed onto the lessors than residential properties.
Investment in Commercial Real Estate can provide a predictable, consistent cash flow while you reap the other benefits of ownership.
Tax advantages are another important commercial real estate ownership benefit. It’s one of few investments that can provide tax flow while shielding some income through depreciation and deductions. Here are some of the tax incentives for commercial real estate:
- Mortgage interest deduction
- Operating expense deductions (property repairs, maintenance costs, some property management expenses, and other operating expenses)
- 1031 Exchanges (allowing you to roll over appreciation into another property, deferring capital gains until you sell without rolling it over)
- Opportunity Zone programs (currently valid through December 31, 2026, with a possible extension. Allows investors in property in designated locations to defer capital gains.)
While you cannot control the appreciation rate, commercial real estate properties tend to appreciate in value over time. This trend is particularly visible in areas with a steady population and business growth, like Texas.
As businesses move in or grow and the expanding population increases demand, properties rise in value. According to Census.gov, Texas gained 9,085,073 residents between 2000 and 2022, representing a 43% increase.
While enjoying the tax incentives and potential cash flow of your commercial real estate investment, you are paying down the mortgage and building equity. In addition to reducing your principal, accumulated equity can help finance future investments.
By refinancing or taking out an equity line of credit, you can fund other investment opportunities. This strategy allows you to leverage existing assets to expand your portfolio.
Over the long term, the combination of principal reduction and property appreciation can result in significant wealth accumulation. Commercial real estate investments can become a cornerstone of your financial legacy.
Commercial real estate can act as a hedge against other, more volatile investments. Real estate is often non-correlated with traditional stock markets. While stock values can change rapidly due to global events or company-specific issues, real estate values tend to move more slowly, offering a buffer against market volatility.
In addition, commercial real estate offers diverse investment opportunities. Different types of properties, such as a new development or industrial flex space, respond differently to market conditions. One location may outperform another. In this way, your commercial real estate holdings offer additional layers of diversification and protection.
A Hard Asset With Intrinsic Value
Unlike stocks and bonds, commercial real estate is a hard asset. You can visit your investment, see it, touch it, and walk through it. Land and structures have a meaningful value that endures market changes.
The beauty of commercial properties like industrial flex spaces is adaptability. These spaces can be customized and repurposed to suit various business needs, ensuring they remain relevant and in demand.
Historically, commercial real estate investments have provided a hedge against inflation. Rising prices drive rents up against fixed mortgage costs. During inflationary times, real estate can provide returns that outpace the rising costs.
Many factors influence how effectively a property can outpace inflation, including the date of purchase, the lengths of the lease, and the mortgage terms.
Commercial Real Estate’s Wealth-Building Benefits
Investing in commercial real estate offers many benefits, from cash flow and tax incentives to appreciation and generational wealth. With a steadily increasing population and diverse economic base, Texas provides game-changing opportunities to investors.
Whether you’re looking to diversify, build equity, experience stable returns, or reduce your annual tax bill, Texas is a strategic location and a hub for various industries. Browse our available properties or connect with our knowledgeable brokers to get started.