One of the hallmarks of commercial real estate is that they are income producing. Unlike most stocks, which pay no dividends, commercial real estate is defined by its ability to pay out regular cash distributions.
2) Capital Appreciation
The ability to create massive wealth through capital appreciation is an even bigger part of commercial real estate than cash flow. It is not uncommon for commercial properties to increase significantly in value of time. Commercial real estate has proven to be one of the greatest hedges to inflation of all investment types.
This is one of the most important reasons that real estate has proven to be such an outstanding investment type over time. Most commercial real estate is not purchased with 100% cash. Properties are normally secured with 20% to 30% cash down and the balance financed by a mortgage. The ability to buy assets beyond your immediate cash available facilitates wealth growth.
Most commercial real estate is based on basic needs: shelter (apartments and mobile home parks), basic services (retail and office), and storage (self-storage and industrial warehouse). Where stocks often revolve around complex business models, commercial real estate is based on strong, perpetual demand.
Most commercial properties have multiple tenants. This gives the owner some portfolio balance and diversity – they are not 100% reliant on just one tenant’s rent.