WHY INVEST IN COMMERCIAL REAL ESTATE?"

WHY INVEST IN COMMERCIAL REAL ESTATE?"

• By Frank Rolfe

It's a competitive world out there. There are many investment options. So why should you invest in real estate? Well, real estate has some unique qualities that have made it one of the top investment strategies in the U.S. for hundreds of years. Its benefits include:

You can get paid two times - instead of once like most other investments.

In real estate, you get money from both the operation of the property (also known as a "dividend") and a second time when you sell it, and it's value has increased due to increasing rents (known as "capital appreciation"). This is in contrast to most other investments such as precious metals and non-dividend paying stocks, in which you only get paid once based on appreciation of the value of the asset. For example, if you buy an ounce of gold, you don't get a penny in dividends. The only thing you get is the difference between what you bought the gold for and what you sell it for. The same is true for most stocks. Clearly, the best of all worlds is to get consistent income while you own it, and then a large distribution when you sell it.

It pays a higher dividend than any other form of investment.

Most real estate investments pay out a dividend of roughly 10%. The average stock that pays a dividend - and most don't - is lucky to be 1%. The same is true with CDs and bonds - you are looking at around 3% to 5%. There are no other forms of investing that can pay out a dividend as high as real estate. Of course, there are such items as "junk bonds" that might pay out 10%, but they might just as likely lose your entire investment if they default. That's why they call them "junk". Remember the saying "before you can have return on investment, there must be return of investment".

It comes with attractive leverage.

Most real estate investments include the potential for leverage in the form of a mortgage. This allows the investor to create an even higher return, without taking excessive risk. If you buy a property and put down 20%, and borrow the remaining 80%, you will increase the yield on your investment hugely, assuming that the yield of the entire property is higher than the interest rate of the mortgage. This ability to utilize intelligent leverage has long been an attraction. It allows you to pay off the property using the property's own cash flow. Can you do this with a CD? No. Bond? No. Gold? No. Sure, you can buy stock on margin, but that is really a form of speculation more than investing, and often has dire consequences.

It is time-proven and has an impressive track record.

Investing in real estate has an impressive pedigree. The first American millionaire - John Jacob Astor - made his fortune in Manhattan real estate. Since then, many of the richest individuals in the U.S. have created their wealth in real estate. These include Donald Trump, Conrad Hilton, Joseph Kennedy, and literally hundreds of thousands more. It has been asserted that more wealth has been created through real estate investing than all other forms of investing combined.

Security.

When you invest in a stock or bond, you really don't have any control over where your money goes or how that company is managed. Unlike Warren Buffet, who normally buys full control of the entity through buying a majority of the stock, the regular investor has no power over the day-to-day operations of the business they own stock or bonds in. Additionally, their stock or bonds are normally not secured by anything tangible. In most cases, all you have as security on your investment is a piece of paper and the hope that there will be a market of buyers for that piece of paper in the future. With real estate, you get a deed to a property - the title to the asset is put in your name. You control what happens. You are the boss. Your investment - your capital - is backed by the title to real estate.

Conclusion

There are many great reasons to invest in real estate. Not only does real estate offer the highest financial returns, it also offers security and has a proven track record of performance. It also offers attractive leverage to allow you to stretch your investment dollars farther and obtain an even higher real rate of return. "I made a tremendous amount of money on real estate. I'll take real estate rather than go to Wall Street and get 2.8%. Forget about it." - Ivana Trump