One of the most important investment benefits of commercial real estate is cash flow from rents.
Secured by leases, commercial real estate investments can deliver regular passive income.
This is important because investing in commercial real estate assets with great cash flow can provide investors with a stream of income and yields that can be higher than typical stock dividend yields.
Investors looking to invest in real estate assets should look for those where risk is mitigated and shared across multiple tenants. For instance, if a company invests only in properties that are leased to single tenants, a vacancy from that single tenant could disrupt cash flow.
Hedging Against Inflation
The U.S. Labor Department recently revealed that the core consumer price index is up 2.4% from a year ago.
During times of rising inflation, institutional investors may seek a hedge against rising inflation by investing in commercial real estate.
Commercial property values are typically based on net income and market capitalization rates. In general, when inflation occurs, rents and expenses rise. This can lead to an increase in net income, particularly in multi-tenant properties, which can result in a subsequent rise in property values.
While inflation is a national economic indicator, for those investing in real estate, it is important to consider property owners or investment firms that look at data locally, not nationally. Commercial properties typically perform based on local and regional market dynamics, including job growth, transportation and infrastructure investments, talent pools, etc. Investors may find more success hedging inflation by investing with owners who acquire and operate assets in high-growth local markets.
Intrinsic Value