For example, vacancy levels sharply rose for some properties like office space, apartments and retail, while data centers and industrial properties performed well. However, most experts agree that long-term contractual leases are helpful with commercial real estate. In other words, if a commercial property is under a long-term contractual lease, there's less worry about near-term market exposures, and it can help protect investors from economic volatility.
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# A Beginner's Guide To Investing In Commercial Real Estate

Forbes Business Council
COUNCIL POST
Expertise from Forbes Councils members, operated under license. Opinions expressed are those of the author.
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Dec 29, 2022,07:15am EST

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Aviva is the managing broker of The Warehouse Hotline and a broker, owner and investor in Denver, Colorado.

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Commercial real estate (CRE) investing is quite different from the stock market. However, similar strategies and risks still apply. Many investors like the appeal of CRE because it has the potential to generate higher returns and offers added tax benefits.

However, if you're interested in this type of investing, there are some things to know. Based on my experience as an investor, the following information should serve as a beginner's guide to investing in commercial real estate.

## How To Start In Commercial Real Estate Investing

Before deciding that CRE investing is right for you, there are a few questions you should ask yourself. The first of these questions is whether you should invest in a single property, a REIT or a crowdfunding option.

With this, it's vital to understand that when considering a crowdfunding group, you must check out the firm's track record before investing. Be sure to learn their obligations and rights when it comes to withdrawing funds.

In regards to single commercial properties, I recommend that you identify the key characteristics that detract from or improve the trends or attractiveness of the property. Most professionals in the commercial real estate industry got their start with single-family rentals. This is helpful because though the investment is not the same, residential real estate gives you a good foundation for starting in CRE.

## Rewards And Risks Associated With CRE Investing

Regardless of your investment type, each comes with its own associated risks. Commercial real estate is not an exception. Though the economy is trying to enter recovery mode, in many ways, the Covid-19 pandemic affected commercial real estate more than others over the past few years.

For example, vacancy levels sharply rose for some properties like office space, apartments and retail, while data centers and industrial properties performed well. However, most experts agree that long-term contractual leases are helpful with commercial real estate. In other words, if a commercial property is under a long-term contractual lease, there's less worry about near-term market exposures, and it can help protect investors from economic volatility.

One benefit is that the value of real estate tends to depreciate over time, so a tax code allows commercial property owners to depreciate a property's value in return for an annual deduction on income taxes. This system provides property owners and investors to also be compensated for renovations aimed at addressing maintenance concerns.

This depreciation allows an owner to hold more of their money by not spending it on taxes. Nonresidential properties allow for 39 years' worth of depreciation, which can add up to a significant amount that's saved on your taxes.

Another reward offered by CRE investing is the 1031 exchange. This is a tax instrument that allows the investor to defer capital gains. The IRS requires you to pay capital gains tax when an investment is sold. However, using the 1031 exchange, commercial real estate investors can hold off on this so they can hold more capital to buy another property.

## Should You Invest In Commercial Real Estate?

Ultimately, the decision to invest in commercial real estate will depend on your overall goals. Some people prefer to stick with single-family homes and never enter the CRE market. However, those who do decide to take the leap often find higher returns, greater tax benefits and instant portfolio diversification. Perhaps the best part is you have options, so I urge you to take a closer look at direct and indirect commercial real estate investing and decide which type best aligns with your goals.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.