9 Reasons to Consider Investing in Commercial Real Estate (CRE)

From stock and crypto to the metaverse and real estate, investors have more options before them than ever before. Then you have options within options. Within real estate, you have residential and commercial real estate (CRE).

Residential investing typically involves renting out or flipping homes, while CRE includes income-producing real estate sectors such as retail, restaurants, warehouses, large apartment buildings, offices, and hotels. Let's explore a few good reasons why you may want to consider investing in CRE.

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Leverage -- or using borrowed money to finance your investment -- is a wonderful advantage of real estate investing that isn't practical for other forms of investing. And by allowing you to collect rent from your tenants, CRE investing can provide you with steady, reliable, relatively passive cash flow.

ALSO READ: 10 Types of Financing That All Real Estate Investors Should Know About

Many residential tenants are responsible people who always pay rent on time and treat the property with respect. But some aren't, and nonpaying tenants and property damage are a huge headache that no landlord wants to deal with.

In most forms of CRE, you and your tenant are both professionals with a shared goal of making money off of the property -- you with rent and them by having a good location to conduct business in. There are no guarantees, but this arrangement can reduce the odds of tenant drama.

Every investment comes with risks of one form or another, of course, but when it comes to inflation, real estate prices generally outpace it. Real estate exists independently from stocks and bonds. Further, you can raise the rents you're charging to compensate for inflation when leases come up for renewal. You'll just want to proceed thoughtfully and carefully in doing so to avoid increasing turnover.

ALSO READ: What Is Inflation?

And speaking of turnover, in the world of long-term residential land-lording, one-year leases are the norm. In CRE, three-year leases are standard. And a tenant who's doing well in that location is highly likely to renew for another three years when the time comes.

From cleaning to advertising and screening potential tenants, turnover can be an expensive hassle. Less turnover means more money in your pocket.

When you invest in a stock, there's no guarantee that company will survive. Land and buildings, on the other hand, are tangible assets that retain their value and usefulness over time.

If the business occupying a particular building fails, the land and building hold value long after the company is gone, and another company can take its place. The building may decrease in value, but you will still have something to show for your investment.

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Presented by Motley Fool Stock Advisor

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From depreciation to 1031 exchanges, a slew of tax benefits are available to CRE investors. Consult with a tax advisor about any planned investments beforehand for help refining a strategy. That way, you can keep as much of that investment income in your pocket as possible.

ALSO READ: 4 Real Estate Tax Tips to Consider in 2022

The importance of diversification is Investing 101. You don't want to put all your eggs in one basket. If, for example, you're currently invested mainly in stocks and bonds, adding CRE can be a great way to diversify your portfolio. It's also a great idea to diversify within CRE. And with so many sectors to choose from, that's easy to do.

If you're looking to invest passively in CRE and easily diversify at the same time, real estate investment trusts, or REITs, can be a great option. REITs allow you to invest in companies that own income-producing CRE across the various sectors. They can be a good way to benefit from CRE without having to finance, purchase, or manage anything yourself.

ALSO READ: Real Estate Investment Trusts: What They Are and How to Invest in Them

The height of the pandemic was pretty brutal on most sectors of CRE. People stayed home as much as possible. But now, most are ready to get back to normal life, complete with in-person shopping, dining, and travel. The pandemic has demonstrated that while hard times will come and go, CRE as a whole is quite resilient.

As you can see, CRE investing has a lot to offer. Whether you're just getting started as an investor or are looking to take on something different, the commercial sectors are worth having a look at. You'll find a wide variety of options to meet you where you're at as far as how much you have to invest, what sectors interest you, and how involved you want to be with your investment.

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Presented by Motley Fool Stock Advisor

We hear it over and over from investors, "I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of "5 Growth Stocks Under $49" for FREE for a limited time only.

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