Investing in Commercial Real Estate: 5 Reasons to Diversify Your Investment Portfolio

One of the best ways to build wealth and meet long-term financial objectives is by investing in real estate. Sands Investment Group has the expertise to help you build an investment portfolio to meet your financial goals. The commercial real estate industry is an excellent place to invest, offering consistent solid ROI. This step is crucial in increasing their chances of better returns and greater long-term profitability.

What is Diversification

Diversification is the process of spreading out risk across your investment portfolio. An investor can acquire accounts in several asset classes to balance the risk of a complete loss. If one investment does poorly, diversification provides an opportunity for the investor to have other profitable assets to draw on.

4 Ways to Diversify Your Investment Portfolio

Like every type of investment, several methods exist for diversifying investment portfolios. An easy way to diversify CRE investments is by investing in various asset types and classes. For instance, an investor can invest in a residential rental property, a real estate investment trust, and a piece of commercial real estate. Investors can also invest in Class A, B, and C commercial properties as each class has pros and cons (we discuss this in further detail in an upcoming blog post).

Benefits and risks exist for each type and class of commercial building. Diversification helps the investor balance their risk. Other ways investors can diversify their commercial real estate investments include the following:

Diversify through several transaction sponsors
Using different commercial real estate investment strategies
Hold Time (Including long-term and short-term investments in their portfolio)
Diversification through locations

5 Reasons to Diversify Your Investment Portfolio

The most common reason is to balance the risk involved in their investment. Yet, there are several reasons investors diversify their commercial real estate investment portfolio.

Immunity Against Stocks Fluctuations
Investors who have money in stocks should be aware that a decline in the market values of their investments can cause a domino effect. However, commercial real estate investments are rarely affected by stock market fluctuations. When the value of their other equities declines, solid commercial real estate investments help to mitigate the effect on their portfolio.
Tax Benefits
A commercial real estate investor may profit from a variety of tax advantages. Taxes on cash distributions may be sheltered or postponed by deductions for things like interest expense and depreciation. For instance, the current cash flow will mostly be lower than the total interest expense and depreciation costs, resulting in a return like a tax-free bond.
Hedge Against Inflation
Fortunately for investment, commercial real estate rarely sees impacts from inflation. According to statistics, the inflation in 2008 was the only time that affected the real estate industry negatively. This is due to the consistently high demand for the commercial real estate industry. Demand will increase as long as people need these properties for their businesses. So, CRE investments offer a hedge against inflation.
Passive Income
Investors can earn passive income from their commercial real estate investment without stress. They can even earn more if they work with reputable commercial real estate companies. Their property manager will handle all aspects of maintaining the property while steady income continues to flow to the investor.
Access to a Variety of Investment Types
When investors diversify their portfolios, they have access to various types of properties. Each of these properties adds additional value to their portfolio while simultaneously protecting their other investments.

Do you need help diversifying your investment portfolio? Don’t hesitate to contact us at Sands Investment Group. We are a reliable commercial real estate brokerage company skilled in buying and selling investment properties. We sell properties for individuals, companies, and other institutions in the United States. Contact us today or visit our website to learn more about our services.