9 Advantages of Commercial Real Estate Investment
Last Updated on, July 12th, 2023
If you’re looking to diversify your investment portfolio or generate long-term wealth, investing in commercial real estate can be a great option. With its high appreciation potential, high rental yield, and tax advantages, there are plenty of benefits to investing in commercial property.
This article will throw light on why commercial real estate is a smart choice of investment.
What is Commercial Real Estate?
Commercial real estate includes properties used for business and commercial purposes. Commercial real estate can either be bought or leased.
Pros of Commercial Real Estate Investing
1. High-Rental Yield
If you’re a real estate investor and not an end user, investing in commercial property can be beneficial because of its high rental yield. In a good location like Mumbai, you can easily get an annual rental yield of 6-10% in a commercial property depending on the location and type of property. The same annual rental yield in a residential property can be as low as 2-4%. Renting a real estate property can help you generate a good passive income. This income can be monthly recurring and a steady income, unlike assets like stocks or mutual funds which can be quite volatile.
2. Great Appreciation Potential
If you invest smartly in a commercial property at a high growth location, you can maximise your returns. For instance, Mulund has witnessed explosive residential growth and it’s only a matter of time before demand for commercial real estate also shoots up. So investing in a premium upcoming commercial project like Marathon Millennium, which has a great location (LBS road in Mulund, next to the upcoming metro line 4), can come with a lot of upsid. When it comes to commercial real estate returns, location is a make-or-break! A location that has good connectivity, good infrastructure and good business opportunities can be the perfect choice. A commercial office at such a well-developed or developing location is bound to appreciate in value.
3. Good Diversification
Diversification is crucial for any investment portfolio, and commercial real estate provides an excellent avenue for diversification. By including commercial properties in their portfolios, entrepreneurs and private practitioners can reduce risk and increase stability. Commercial real estate performs differently from other asset classes, providing a buffer during economic downturns and enhancing overall portfolio resilience.
4. Hedge Against Inflation
Commercial real estate can act as a hedge against inflation. When inflation occurs, the value of real estate increases, including rental rates. As a result, commercial property owners can adjust lease terms and increase rental rates, protecting their income stream and potentially generating higher returns. During economic upswings, commercial real estate values often rise, offering opportunities for capital appreciation.
5. Opportunity for Business Expansion
Investing in commercial property also opens up a door for business expansion. By owning a commercial property, you get a ready-made space available in case you have your own business. Whenever you aim to start a business, you can terminate the lease and occupy the space.
By occupying your own space, you can even save on rental expenses and generate income by setting up your own business. Hence, a commercial property can be used to first generate rental income and later offers an opportunity for future business expansion.
You can also leverage your property by opting for a loan against property. A loan against property will come at a much lower interest rate as compared to unsecured business loans. You can even get an overdraft facility against your property.
6. Longer Term Lease Agreements and Professional Tenants
Commercial real estate tenants sign leases for a long time. This is because businesses prefer to establish themselves in a specific location for a long time to establish a good visibility and generate income. Long leasing can ensure stability and reliable income for investors.
Commercial real estate tenants also approach leasing with a business mindset. Such tenants pay their rent on time and the relationship with them is more professional and business-oriented, making them easy to deal with. Some commercial leases often have conditions that hold the tenant responsible for maintenance, repairs, and operating expense, reducing the burden on the landlord.
7. Tax Benefits
There are tax benefits of commercial real estate investment. The interest you pay on the loan for your commercial property purchase is deductible. The processing fees you pay to get a loan are also deductible. This is deductible only in the year in which you take possession after the construction is complete. You can also claim five equal instalments for any interest paid over a given year before taking possession of the property.
When you take a business loan to purchase a commercial property, you can enjoy certain tax benefits. You are eligible to claim a deduction of 30% on your taxable income for the amount invested in equipment, technology, building materials, repairs, and renovations related to the commercial property. This deduction can lead to significant tax savings for you as a business owner.
Conclusion
Investing in commercial real estate offers numerous benefits, including the potential for higher returns, tax advantages, stable rental income, value-add opportunities, portfolio diversification, and protection against inflation. However, it is essential for investors to carefully assess risks, conduct due diligence, and seek professional advice to make informed investment decisions in the commercial real estate sector.
Commercial Projects By Marathon
1. Marathon Millennium, Mulund
Marathon Millennium is an upcoming commercial tower situated in Mulund, Mumbai. It has gained popularity in the Mulund commercial real estate market because of its metro-adjacent location. From 350 to 10,000 sqft, it has office spaces for all types of business.
2. Marathon Futurex, Lower Parel
Marathon Futurex is a prestigious commercial tower in the business district of Lower Parel. Leading MNC’s, unicorns and Fortune 500 brands work out of Futurex. Futurex offers offices from 800 sqft to 2,00,000 sqft. It is at a stone’s throw from Lower Parel and Curry Road station and Lower Parel monorail station.
