Should you consider making commercial real estate part of your investment portfolio in 2016? If you are not currently invested in this area, you might want to give it serious consideration.
Think of your investment portfolio as a group of “buckets” representing cash, stocks and bonds, real estate and other investments. Regardless of the amount of money you invest across these buckets, your portfolio should have a degree of balance, so that if one bucket does poorly, the good performance of another bucket can make up for it.
Cash is needed for stability; stocks can play a key role in your portfolio’s growth; and bonds bring in safe and predictable income. Commercial real estate is an investment that can offer unique advantages: It can be a hedge against inflation, offer balance when other “buckets” are performing poorly, deliver steady income and possibly provide tax savings.
“Balance” is a key factor of wealth preservation. Remember, it’s not just about how much you make, but how much you keep.
For those wishing to invest in commercial real estate, today’s market offers an array of possibilities.
- Real Estate Investment Trusts (REITs): Investing in a REIT means buying shares in a publicly-traded company that owns income-producing real estate. It’s a hands-off investment that requires no work on your part, and may (or may not) rise and fall in line with the stock market.
- Triple Net Investments: Also referred to as Net Leased Credit Investments, triple-nets usually mean investing in land that will be occupied under a long-term lease (often 15 years) by a single retail tenant, such as CVS, Dollar General, McDonald’s, etc. The tenant is responsible for taxes, insurance and common area maintenance costs. This investment can mean steady income with little management responsibility.
- User/Owner Investment: Under this arrangement, you buy property and lease it back to your company. You are your own landlord, and you may choose to lease space to other companies. Income from this investment may be taxed at a more advantageous rate than other investments.
A “home run” in commercial real estate is an investment that provides steady rental income, tax advantages, asset appreciation and financial stability, with a level of risk that fits well with the rest of your portfolio.
2016 offers a new land of opportunity. In the Corridor, there are more opportunities to invest in commercial real estate today than there were in the past. Interest rates have been low and quality properties have become available as large companies right-size their portfolios.
If you are ready to consider adding this “bucket” to your portfolio, a commercial real estate professional can help you determine the type of investment and level of risk that best suits your particular investment needs. Your real estate broker should be part of your team of trusted advisers, much like an accountant, attorney or financial adviser.
Abby Glassberg is with NAI KLNB in Ellicott City. She can be contacted at 443-574-1433 or firstname.lastname@example.org.