The typical retiree these days go for the stocks and bonds in the stock market when it comes to investing and growing their life savings, according to experts. However, some are also learning to diversify their investments in mutual funds, or starting a small internet business or even commercial real estate! Some Caribbean island nations even offer the purchase of a real estate property as substantial investment that you can propagate and get huge ROI’s due to the tourism potential in the area.
But what are commercial real estates and why are they more profitable to investors?
Commercial Real Estate (CRE)
Commercial real estate (CRE) are prime lots (some with existing infrastructures) that are on strategic locations with high commercial value. These properties are mostly for rent or lease where investors get a fixed monthly income from them; however, even though it can help diversify the risk in a retirement portfolio – it is not all pudding and pies. Therefore one has to consider it thoroughly just like any other investment options.
According to the managing director of Real Estate Research in Des Moines, Iowa – Brian Velky, the average American employee had invested over $22 billion in CRE’s this year compared to $10.5 billion in 2009 which sees a 51% increase in their overall investment portfolio.
Rents paid by commercial tenants of office buildings, factories and shopping malls can provide a stable source of income that can serve as a hedge against inflation as the U.S. economy grows.
Commercial real estate returned an average 8.6% a year in combined appreciation and income over the decade ended June 30, according to an index of more than 7,000 U.S. properties compiled by the National Council of Real Estate Investment Fiduciaries. That compares with an annualized 7.8% for the S&P 500, including dividends, and 4.9% for the Barclays U.S. Aggregate Bond Index, according to data tracker Lipper.
Buying a Real Estate Property
There’s an old joke in commercial real estate: If you think nobody cares you’re alive, just miss a few mortgage payments.
Unfortunately, there was a lot of that going on during the credit crisis that started in 2008, as commercial real estate values went into a freefall. According to the Massachusetts Institute of Technology Center for Real Estate, commercial property values fell by 10.6% in the fourth quarter of 2008, alone – the biggest price drop since 1984.
But to savvy real estate investors, times of lower prices typically reveal genuine investment opportunities. For instance, according to a survey by Marcus & Millichap Real Estate Investment Services, of 1,129 commercial property investors, 51% planned to increase commercial real estate allocations during the 2008 credit crisis.