With the recent stock market uncertainty, more investors may want to consider commercial real estate (CRE) markets.
These real estate investments can diversify an investor’s portfolio, offering a safer option than the volatile equities market and the low returns from bank deposits. Within the CRE market, investors must decide between two options: equity or debt.
Equity investments can involve buying stock in companies that specialize in CRE, buying a property outright or utilizing mutual funds and ETFs. The risk-return profile can vary widely in equity investments.
Private debt can be a safer and potentially more lucrative way to enter the CRE market. Backed by physical property as collateral, CRE debt provides a safety net of assets in the small risk of a default.
Here are some reasons commercial real estate makes sense:
Rate of return
CRE has shown annual average returns of 8.8% on the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index over the last 15 years, outperforming the S&P 500. More recently, absolute returns on private debt backed by CRE have been in the 6-12% range.
Cash is flowing
Investments in real estate often deliver a reliable cash flow which is paid monthly, quarterly or annually. In assets such as office, industrial or apartment buildings, high occupancy rates and rising rents typically deliver a consistent, even rising cash flow over the long term.
Appreciation of assets
In general, CRE investments are going to rise in value over time due to growing rents or property appreciation determined by changes in the local market. Because property values can fluctuate within market cycles, a properly timed exit strategy will maximize value to the investor.
Hedge against inflation
Real estate investments can help offset inflation’s impact, a key benefit of adding CRE to your investment portfolio. This is generally credited to rent adjustments over time. When economic growth raises inflation rates, investors can expect to see rent rates grow as well.
To learn more about real estate investment opportunities, contact the experts at DRK & Company Realty - call 614-540-2404 or contact us online.