Smart investors know that a diversified portfolio is an agile portfolio. When an asset class is on an upward trajectory, you’ve got exposure to enjoy the rewards. And when things start to dip, your store of value assets can help you steady the ship. However, not all diversification happens within your investment funds. Diversification among tangible assets like commercial real estate can help you take advantage of profitable opportunities with layered benefits.
1. Obtain Tangible Assets With Growth Potential
Things just feel more accurate and real when you can touch them. A physical asset like real estate can offer more stability than those whose values are built on speculation and consumer confidence. While stocks certainly have their place in your portfolio, they do represent more volatility, especially when subjected to global and economic pressures.
Due to the land and structures involved, commercial real estate retains value even during economic downturns. Flexible real estate, like multi-use properties, can further hedge your bets, attracting a broader range of tenants.
If you’re positioned to develop a new property, look for areas with unserved needs. For example, an area that lacks essential resources like groceries and shopping could offer multiple development opportunities. Conduct market research to determine where economic growth is headed in your target area. Evaluate the market needs and invest accordingly.
Other real estate investments may require a new perspective on an old model. Mobile home parks have been around for decades but may present massive returns. Lifestyle investor Justin Donald says, “Now, more than ever, mobile home parks represent incredible opportunities for lifestyle investors.”
If you have management experience, applying it to the often antiquated mobile home park model can give you quick returns. Infrastructure upgrades like installing electric meters on individual units instead of one master meter slash costs on day one. Often, mobile home parks are owned by individuals who may even finance the transaction, making getting into a park even more easy and profitable.
2. Gain Access to Real Estate Tax Breaks
If you own commercial real estate directly, you unlock tax breaks stocks just can’t provide. You can depreciate your assets to reduce your tax liability. If buying additional real estate, use a 1031 exchange to defer taxes when re-investing profits.
Work with your tax advisor to identify potential opportunities when you get into commercial real estate. Ideally, you have a conversation before you make an offer on your first property. Together, develop a multi-year strategy to help you manage tax implications and maximize every opportunity. Your other investments can influence the significance of tax benefits for your portfolio.
If your payment arrangement is seller-financed, you will want to outline those details with your tax professional. You can deduct the interest on the note if you have a mortgage on the property. Finally, explore what capital expenditures and expenses you can deduct from your profits, including roadway repair, employee expenses, and renovations.
3. Bring Stability to Your Portfolio by Providing an Essential Service
Stores of value assets like gold can feel secure, but investments that are always in demand can provide similar security. Take mobile home parks, for example, which fill a void in the housing market. Parks can be located nearly anywhere, as utilities can be park-owned or connected to utility services. Tenant rates are set in their agreements, and the reliability of regular monthly income can provide consistency to your portfolio.
Rent rates are often among the most affordable, which improves housing accessibility for individuals with lower incomes. Additionally, the environment of a mobile home park offers more conveniences than traditional apartments. Tenants can enjoy more private living arrangements and outdoor space, including parking.
Parks located in popular areas, like retirement hotbeds or tourist destinations, can attract both workers and superfans. For example, areas with many retirees may need people in healthcare and food services to support demand. Additionally, tourism areas need thousands of workers to provide hospitality services to their guests.
Mobile home parks present affordable housing options for these workers and even official arrangements with their employers for employee housing. Research areas with this type of demand to determine if a mobile home park would be an advantageous investment.
4. Enjoy Value Appreciation and Strategic Growth
There’s a reason that real estate is often linked to wealth creation, and when you can incorporate it into your portfolio, you can win. National data shows residential real estate increasing with a long-term average of 4.4% since 1990. As a commercial real estate investor, you can leverage your buying power and access residential properties.
Look at multifamily housing with adjacent investment opportunities. Properties near outdated or underutilized buildings can be reimagined and redeveloped. Assess the areas’ access to transportation, entertainment, and green space to pinpoint high-growth opportunities.
While a building may not look like much now, it can be upgraded to attract high-end tenants. Unique features like architectural details or historic relevance can add a novel appeal to your property.
The key to ensuring long-term value appreciation for any project is its management. Develop a management plan and process if you’re embarking on a tenant-based property. You may wish to hire a property management company or an individual to handle your affairs. Set aside profits for repairs, renovations, and potential losses to ensure you provide a consistent experience and protect your investment.
Unlock Unrealized Potential in Commercial Real Estate
The commercial real estate world is waiting for investors whose business acumen and fresh approach are up for the challenge. With a keen eye for untapped potential, you can win big in commercial real estate. You can strengthen your portfolio by exploring underserved areas, rethinking old approaches, and offering a unique experience.
Explore commercial real estate listings to determine what type of properties are moving and what price. Then, take it to the next level by researching and contacting property owners with interesting properties. Sometimes, all you need to do is ask to find the next great commercial real estate deal with significant potential. With a more diverse portfolio, you’re in control of your future and your income.