5 Reasons to Invest in Commercial Real Estate Funds and REITs

If you’re considering investing in property, it might pay to take a closer look at Commercial Real Estate Funds or REITs (Real Estate Investment Trusts). Both Real Estate Funds and REITs offer several advantages over traditional real estate investing that can help you grow your wealth over the long term, and here’s why.

Commercial Real Estate Funds and REITs require only a modest initial investment as investors are pooling their funds together to purchase large commercial buildings. This accessibility allows investors of all wealth levels to participate in commercial real estate and reap the associated benefits. Typical real estate investing is reserved for the ultra wealthy, that can afford to shoulder the enormous up fronts costs by themselves.

Diversification is a fundamental strategy for reducing investment risk. Commercial Real Estate Funds and REITs make diversification way more straightforward, giving you access to a diversified portfolio of properties across various sectors and locations. This is, again, down to the act of pooling your resources with other investors. Diversification is key to reduce your exposure to the fluctuations of any single property or market, and ultimately improving the stability of your investment.

Commercial Real Estate Funds and REITs will often use leverage (borrowed money) to purchase properties. This means the Fund or REIT gain all the appreciation with a smaller initial investment. For instance, if a Fund or REIT puts down a 50% down payment to purchase a commercial property/properties and they appreciate at 2.5% per year, it effectively results in a 5% annual return.

Commercial Real Estate Funds and REITs offers a stable income stream or dividend payment. Most commercial leases include long term tenancy agreements, with built-in rent increases, leading to predictable income for investors in the Funds. Additionally, turnover is generally lower, reducing vacancy risks.

Real Estate Funds and REITs can also come with tax benefits. The Funds can (and will) take advantage of depreciation, business expenses, and mortgage interest deductions to improve the tax efficiency of its investors and maximize returns.