Should You Invest in Commercial Real Estate or The Stock Market?
Let’s talk about money.
Do you have a bit of it and are wondering how to invest it?
As you likely know, making money is one thing, keeping and growing it is entirely another.
There are whole financial and media industries allocating billions of dollars in an effort
to influence you to spend and invest in a certain way.
Some of them are great, but most are questionable.
So, how to invest? Well, that’s obviously a huge question, one that I can’t definitively
answer for you. Your age, your income, your risk aversion, your goals … those would
all have to come into the equation.
But let’s break it down to two of the most well known investing strategies … real estate
and the stock market. And let’s break it down further to commercial real estate.
Which is better? I definitely have an opinion about that ...
The Pros and Cons: Commercial Real Estate vs. Stocks
This is an interesting comparison.
In many ways, commercial real estate and stock investing have similar pros and cons.
Let’s simplify this section just a bit by conceding that the cons of both investment
strategies are, basically, the same.
And by that, I'm referring to risk. There are others, but risk is the big one.
If you’ve been around the block a few times (or, at all) as an investor, you know that
your ability to take and absorb any amount of risk is a large part of the game.
In both commercial real estate and stock investing, the risk is real. It can be mitigated by a
number of factors such as competence, research, mentorship, and patience … but it’s always
going to be there.
If you want to keep and -- more importantly -- grow your money, you’re going to need
to take on some amount of risk.
So let’s call the cons between these two strategies even, and move on.
Now, where they differ in terms of the pros, in my opinion, makes all the difference in
this debate ...
The Pros of Stock Investing: * Passive Income
* Tax Benefits * Easier to Enter
The Pros of Commercial Real Estate Investing: * Leverage
* Passive Income * Depreciation
* Tax Benefits * Appreciation
You see that one list of pros is longer than the other. And I’m sure that more could
be added to each (depending on who you’re talking to), but I’m concerned with the
basics here.
What’s missing from the stocks list? Leverage, depreciation, and appreciation. And those
are VERY important factors in your decision making process, because ...
Commercial Real Estate is Real
This is, for me, the big one.
Commercial real estate is a physical, tangible product.
It’s something that you can actually drive to, see, and touch.
You can even live or work out of the investment you’re making!
Even some of our clients do just that -- they operate their businesses from the property
and allow that company, which is their active income, to pay down the mortgage and cover
all expenses associated with the property.
There’s value in the income and the asset itself.
And, unlike stocks (and most of your other investment options) commercial real estate
has value not only in the income and cash flow it throws off, but also the land itself
and the property’s improvements, such as the building and infrastructure.
In a worst case scenario where your income falls to zero because either the tenant has
defaulted on their lease or has moved out, you still have valuable assets to fall back
on, which certainly protects your downside.
Tangibility is ultimately .
Commercial real estate is also a relatively stable asset, as it can offer housing (apartment
complexes and mobile home parks), services (retail or office space), or storage and manufacturing
(industrial warehouses).
Because of these factors, commercial real estate often does not fluctuate and experience
the roller coaster swings that the stock market will.
Not to mention the peace of mind you’ll have by being able to drive by the asset.
And last, but certainly not least ...
Commercial real estate offers historically higher returns.
When it comes to overall returns, nothing beats real estate.
As I’ve already said above, not only can you make near-instant regular cash flow a
reality from a good commercial real estate investment, but there’s the building and
land itself in the deal that appreciates over time.
And you can do a 10 minute research run online to see how land investments have done historically!
How to Diversify Your Commercial Real Estate Investments
Alright, I think we’ve established my take on this debate: Commercial real estate is
a much better investment than stocks.
But there’s a question I get that keeps coming around, it goes something like this,
“Tyler, it’s so easy to diversify in the stock market, how can that diversification
be matched in commercial real estate?”
Glad you asked. Well, I guess they asked, but let’s assume you’re asking too.
The answer depends a bit on just how aggressive you are as an investor.
Of course, anyone can diversify in both asset classes, and many experts would advise exactly
that.
But I’ll go all in -- again -- and state that I think commercial real estate is the
ticket. And I’m not only saying that, my money is where my mouth is on this topic … 99%
of my personal portfolio is in commercial real estate.
And, at the risk of sounding like a braggart, I’m doing just fine. My personal wealth
is hitting the target goals I want it to and our business is growing like never before.
Now, I understand, commercial real estate may not be for you.
But let me ask, are you sure about that? I mean, have you done the research yourself,
or is it possible you’re operating on the advice of an relative or a friend who’s
got a lot of opinions but never had skin in the game.
Here’s the bottom line: Diversification can be an investor’s best friend. Here are
three ways you can diversify as a commercial real estate investor ...
There are many ways to diversify your portfolio as a commercial real estate investor.
First, a commercial property usually means multiple tenants. And more tenants = less
risk.
Think about it -- if you have a single-family home and your tenant moves out, you now have
a 100% vacancy rate.
However, if you own a 50-unit multifamily complex and one tenant moves out, you won’t
hardly notice the impact on your bottom line.
Second, if you’re investing with an established real estate operator, you’ll be able to
select which asset type, where the asset is located, and proposed project type.
And, depending on the amount of your investment capital and/or how you slice it up, you can
own multiple multi-tenant buildings that are producing cash flow and appreciating in value
nearly every day you hold them (historically, of course).
Third, there is nearly an unlimited amount of different types of investments you can
make in the commercial real estate realm.
That is, there are at least five primary types of commercial real estate investment, and
nearly unlimited variations of deals you can structure within these types …
* Multifamily * Office
* Industrial * Retail
* Hospitality
To me, that’s the very definition of diversification!
It’s maybe not as easy as punching a few buttons on the computer and getting yourself
into the stock market, but if you partner with the right operator, commercial real estate
investing can be incredibly passive and deliver a much bigger return.
So, what does all this come down to? Who wins the battle of commercial real estate vs. stock
investing?
I Believe Investing in Commercial Real Estate is The Best Bet That Can Bring The Best Return
So there you have it, my opinion on the commercial real estate investing vs. stock investing
debate.
As I said at the start of this article, I can’t make a decision like this for you,
and none of this is explicit financial advice.
That said, in my experience, commercial real estate is a far superior investment vehicle.
While you obviously need to make your own investment decisions, if you’re sitting
on $100,000 or more, I’d like to talk and show you what we’ve been able to do in the
last few years.
I think you might find it interesting.
Give me a call today. We’ll have a no pressure chat about your investment needs and desires,
and see if investing with us in our projects is a good fit for you.