Commercial Real Estate Advantages

• The value of a commercial property is determined solely by the capitalization rate (cap rate) and the property's rental income. Cap rates are roughly constant for a particular geographic region and property type, so this means if you increase the rental income of a commercial property, you also increase the property's value proportionally. Unlike residential real estate, value doesn't depend on comparable sales in a surrounding area at all.

• Commercial leases are typically much longer-term (10-20 years or more) with built-in escalations (periodic increases in rent). This means the property value inherently will increase over time as long as the tenant pays rent. Moreover, even though the property value increases, the IRS allows you to depreciate 1/39th of the property for 39 years in most cases. If you also have a fixed mortgage with favorable terms, your tenant's rent covers more than the mortgage payment and multiplies your rate of return.

• Corporate guarantees on leases provide security that the the tenant will pay you the rent, and you won't be dependent on the success of a particular location. The larger corporation instead of the individual store will be responsible for the rental payments for the duration of the lease. Finding strong national tenants with corporate guarantees is one of our specialties.

• Unlike other rental property types, commercial properties commonly have triple-net (NNN) leases, which means the tenant pays for the property taxes, insurance, and maintenance. This makes the investment less hassle than other property types.