“I really like my life. I’ve arranged my life so that I can do what I want.”– Warren Buffett.
This quote from the great Warren Buffett encapsulates the drive behind nearly all entrepreneurial impulses, namely, a desire to achieve the economic liberty from which all other freedoms flow.
Many believe that with its potential to achieve annual returns of anywhere from 5-12% (often much more), commercial real estate trumps most other methods of wealth creation and provides the ultimate means to attain economic freedom.
Undergirding this belief is the fact that over 80% of the wealthiest families in North America attribute their wealth to real estate investment.
1. The incredible power of debt. One of the most striking differences between owning commercial property and other investment classes is the power achieved through debt. Debt typically comes with amortization. Real estate wealth flows from such amortization. For example, when you put $500,000 in purchasing an apartment building, you will have tenants paying down the mortgage for you, month after month.
2. Income potential. While it seems as if a lot of the more traditional wealth-building assets trudge along, barely able to keep up with inflation, investing in the right types of commercial real estate has the potential to net you returns of 6-12%, perhaps even more.
3. Making minor changes can add up to significant returns. Commercial real estate, especially storage facilities, office buildings, and apartments, can be tweaked to produce higher profits. We’re not talking about million-dollar renovations here, but simple changes that can add up quickly. For example, you might be able to renegotiate costs associated with your purchase, such as sanitation company fees, security costs, building maintenance, or landscaping. Cost control is a method of raising the equity in your property that hasn’t cost you a cent!
4. Unlike speculative investing, you have control. Most asset classes require a person to assume that values will increase. “Assumption”, in our opinion, equals “speculation”. As we all learned during the Great Recession of 2008, speculation can go sideways in a hurry.
A majority of wealthy people avoid speculative investments and focus on asset classes over which they can exercise the most control. Control makes commercial real estate particularly attractive since you can control the expenses of the property and raise rents to increase income.
5. Alignment of interests. People who invest in commercial properties are usually operating those properties like businesses, not “side gigs.”
This tendency toward professionalism can create respectful and mutually beneficial relationships between tenants and owners.
These are just a handful of the reasons we think it pays to take a closer look at commercial property investment. If you are someone who wants to create a stream of wealth with which you can grow your net worth, pay off debt, or prepare for retirement, then commercial real estate offers you a profitable avenue to achieve those goals.
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