In the world of investments, commercial real estate stands out as a robust avenue for individuals seeking to generate large amounts of passive income and build long-term wealth. Beyond residential real estate, the commercial sector offers unique opportunities for making your money work for you. In this article, we will explore the strategies and benefits of investing in commercial real estate to harness the potential of passive income.
Understanding Commercial Real Estate:
Commercial real estate encompasses various property types, including office buildings, retail spaces, industrial warehouses, and multifamily apartment complexes. Unlike residential properties, commercial real estate is primarily used for business purposes, providing investors with a diverse range of opportunities. Freeway Group’s main focus will be on industrial real estate. The powerhouse of commercial real estate.
Rental Income:
One of the primary ways to make your money work for you in commercial real estate is through rental income. Businesses, from small retailers to multinational corporations, lease commercial spaces, providing a steady stream of income for property owners. Well-located properties in high-demand areas often command higher rental rates. Industrial properties such as warehouses are tenanted by businesses that have been in the market for a long time. These businesses will sign a long-term lease with you and the contract will include a rent escalation of 4% per year, and these businesses are perfectly ok with that because that is how the industrial real estate market works.
Real World Example:
I have a client in Woodstock who owns an M3 Zoned industrial property which is leased out to multiple tenants and the property still has space to put more tenants. He currently has paid off his property and purchased it below market value with the help of Freeway Group finding special off-market deals. The client enjoys taking long vacations and lives a very lavish lifestyle. The client puts in his pocket $50,000 per month in profit. This is just one of the clients many commercial properties.
Long-Term Appreciation:
Commercial real estate has the potential for long-term appreciation, allowing investors to build wealth over time. However, in certain locations especially in Canada, Ontario many industrial properties have potential for increasing in value almost exponentially and very quickly. Strategic investments in areas with anticipated growth or redevelopment can lead to increased property values, resulting in substantial returns when the property is eventually sold. The growth you see in commercial properties is substantially more than any residential property.
Triple Net Leases:
Triple net leases transfer operating expenses, such as property taxes, insurance, and maintenance costs (TMI), from the property owner to the tenant. This arrangement can result in a more predictable and stable income for investors, as tenants are responsible for covering these expenses. The tenant is also responsible for maintaining the property, landscaping, and snow removal. The landlord’s main responsibility is to collect a cheque every month.
Diversification Benefits:
Investing in a diversified portfolio of commercial real estate properties can provide risk mitigation. Different property types and locations may respond differently to economic cycles, reducing the overall risk associated with the investment.
Freeway Groups Free Tip:
If a property is for sale on the public market, it is not a good deal. The properties you need to target should be off-the-market properties. Properties that nobody knows about or that are not easily available to the public. Sometimes you need to ask around what people have and figure out if it has ever been listed on the MLS or any other public before.
Considerations and Challenges:
Market Research:
Thorough market research is crucial before making any investment. Understanding local market trends, demand for commercial space, and economic indicators can help identify lucrative opportunities.
Risk Management:
Like any investment, commercial real estate carries risks. Mitigating risks involves conducting due diligence, working with experienced professionals, and staying informed about market conditions.
Conclusion:
Investing in commercial real estate is a powerful way to make your money work for you, providing opportunities for passive income, long-term appreciation, and portfolio diversification. By understanding the various strategies and conducting thorough research, investors can unlock the full potential of commercial real estate as a wealth-building asset.
