The Problem of Diversification in the Real Estate Sector
Owning residential buildings for rental remains the most popular option for most people looking to invest in real estate, after all, food, clothing, and shelter are the basic necessities of life. Also, owning what could be turned into a second home with minimal effort or sold when the equity of the house appreciates sounds like the best of both worlds.
Not really.
When it comes to real estate investment options, rentals pales in comparison to the exciting prospects in Commercial Real Estates (CRE) for investors looking to diversify and balance their portfolio.
CRE offers individuals a direct path to passive Investment and high-income potentials across several industries with lower risk. Passive investment gives contributors a hands-off approach to investment, enabling them to literally invest and forget about it no need for making daily decisions about the investment itself. This option is most appealing especially to less savvy investors, who are not required to be knowledgeable about the asset class they are investing from fund managers. Contrary to popular assumption, rentals are fraught with occupancy risk, more difficult to manage, and higher capital cost per occupant. Owning a single rental means the investor is betting all or nothing on the market while fending management costs and an unsustainable cash flow. But what if you can diversify your risks across a slew of industries and sectors, asset types, geographical locations, and business plans? This is the unique opportunity presented by Commercial Real Estate.
Unlike residential, commercial real estate is based on acquiring properties for businesses to operate out of. Businesses pay a lease to use the property for production, storage, or office space, providing investors with steady cash flow and higher income compared to residential buildings. CRE averages an ROI of 612%, a vast improvement over the 14% residential often return on investment.