This article explores the “Top Six Reasons Why Chicago Commercial Real Estate Is Attracting a More Diverse Investor Base“
Commercial real estate has a long history of being a profitable investment during both up and down market cycles, and it plays an important role in a diversification strategy for investors.
CRE Chicago has a long history of being a compelling financial play during both up and down market cycles, and it plays an important role in a diversification strategy for investors. Domestic and international investors are looking to the United States as a safe haven to park their money to protect their original investment while generating a profit.
According to a 2017 analysis by Grant Thornton, a multinational accounting and consulting business, foreign investors continue to engage in commercial real estate in the United States because of its stable market compared to the uncertainties that plague so many other countries across the world.
Investor sentiment was predicted to be stable and progressively bullish in 2017, allowing to maintain present investment sale levels. Increased portfolio and platform transactions were a significant cause for profits in 2017 and 2018, following three record years of single asset sales.
Several current micro-and macro-level phenomena are fueling the strong investor hunger for real estate. Concerns over China’s slowing growth and the potential negative impact on the global economy are at the top of the list. Stability, portfolio diversification, cash flow, and appreciation are just a few of the direct real estate investment advantages. Here’s a rundown of the main reasons commercial real estate attracts a wider range of investors.
1. Profitable Returns
Because of the greater long-term yields, institutional and private investors have been long-term investors in commercial real estate. Real estate returns are favorable compared to traditional alternative investments such as equities and bonds. According to the National Council of Real Estate Investment Fiduciaries, the NCREIF Property Index (NPI) had a total return of 5.23 percent in the third quarter of 2021, consisting of income of 1.05 percent and appreciation of 4.18 percent, up from a total return of 3.59 percent the previous quarter. Over the last 15 years, the NCREIF Index has returned an average annual return of 8.8%, which is 200 basis points more than the S&P 500’s average performance during the same period.
2. Cash Flow
In Chicago, Commercial Real estate investments often generate consistent cash flow, with income given monthly, quarterly, or annually to investors. Buying a passive, minority ownership share in a physical asset, such as an office, industrial, or multifamily building, is how American Landmark Properties invests in equity. High occupancies and growing rents provide most owners/investors what they want: consistent or rising cash flow over time.
3. Use of leverage
This is when a tiny initial cash commitment generates a large return on investment. Banks often need a cash equity commitment of 30 to 35 percent of the asset’s acquisition price for investment properties.
4. Appreciation of Assets
Over time, real estate investments in Chicago usually improve in value. This increase in value can be due to rising rents or the market pricing the asset more than it was previously. Investors can increase their overall investment return by cashing in on property appreciation or a capital gain when the asset is sold. Property values rise and decrease during market cycles, making timing the exit plan a crucial part of maximizing investor return. The investment strategy of American Landmark Properties is typically based on the possibility of stable cash flows, with a hold duration of five to seven years or longer.
5. Tangible Assets
Another significant benefit of real estate investing in Chicago is that it is an excellent strategy to diversify hard asset-backed portfolios. Purchasing real estate is not the same as buying stock in a firm that may exist today but not tomorrow. Real estate is a tangible asset class that investors can feel and touch. While some building occupants may come and go, and building assessments may fluctuate throughout the course of its existence, the property itself will not vanish.
Crypto vs. Real Estate
While some characteristics of crypto appeal to investors, there are also significant disadvantages. For starters, it is not a movable asset. Bitcoin is only available online; therefore, you can’t handle it in your hand. This opens the door to cyberattacks and other sorts of cybercrime, which could cause you to lose money.
Due to the lack of transparency, it is difficult to identify a coin’s genuine value, which can lead to it being traded for a higher price than it is truly worth. These reasons contribute to the risk that cryptocurrency will become a bubble, leaving investors with nothing. Additionally, there are no dividends or rents paid when you possess bitcoin; therefore, there are no chances for passive cash flow.
Another disadvantage of cryptocurrency is its tremendous volatility. As you’ve probably noticed, we’ve had to point out several times that the coin’s current values reflect what they were trading for when this article was written.
Bitcoin has gone from roughly $10,000 in October 2020 to over $60,000 in April 2021 in just over a year and is now in its forties. Even the most risk-averse investor finds it difficult to invest since they know they could lose their entire investment at any time.
Commercial real estate has inherent value, on the other hand, because of what it is, not because of what people think it is worth. Real estate is also a need, as people will always require a place to live, work, exercise, etc.
As an investor, you will also have the ability to force the asset’s appreciation. You can undertake smart renovations that will result in higher monthly rents and, because real estate assets are valued based on their net income, will raise the property’s worth. These enhancements can range from fresh paint and elevations on the property’s outside to security upgrades or even a complete interior renovation.
Commercial Real estate in Chicago also provides a consistent stream of income in passive cash flow. These monthly rents can be utilized to cover a property’s mortgage payment, all costs and still leave money on the table. Rents will normally rise in tandem with inflation, making real estate a good inflation hedge.
One of the most notable advantages of being a real estate investor is the tax incentives and deductions you’ll receive, making it more profitable than other types of investments.
So, should you invest in cryptocurrency or real estate? It’s a clear choice between crypto and real estate when it comes to financing your money. Investing in real estate gives you a tangible asset that will provide you with a consistent monthly income stream and appreciation.
Several tax advantages and incentives are associated with real estate, and you can leverage your investment to improve your returns. Real estate is also unaffected by the stock market, making it an excellent method to diversify your portfolio and reduce overall risk.
On the other hand, crypto is more of a speculative bet than a sound financial investment. The price is extremely volatile, and any investor could lose all or part of their investment. It doesn’t pay dividends, and capital growth is the only way to profit from it.
Real estate involves substantially less risk, provides more predictable returns, and provides a tangible asset. Real estate is virtually always the superior investment.
6. Hedge Against Inflation
Commercial real estate is typically regarded as an asset type that can help investors mitigate the effects of inflation over time. That benefit is frequently touted as one of the benefits of including real estate in a mixed-asset investing portfolio. Real estate’s inflation-hedging benefits are often attributed to its flexibility to change rents over time. In most cases, significant economic growth leads to increased inflation and, as a result, higher rent growth.
There are numerous compelling reasons to invest in commercial property. Commercial real estate investment prospects have traditionally been limited to a minimum of $250,000 investments, making the class out of reach for all but the wealthiest investors.
However, legislation, such as the JOBS Act of 2012, has lately aided in establishing a new class of online real estate platforms that are democratizing access to commercial real estate deal flow. Accredited investors can now invest directly in commercial real estate through companies like American Landmark Properties.
The American Landmark Properties online investment platform provides investors with real-time transparency on a selection of commercial real estate investment options across the country, as well as tools to track performance and manage their own developing real estate investment portfolios.
Tag Commercial provides institutional-quality commercial real estate investment possibilities with no joining or investment fees. Please get in touch with us right away to get started in CRE Chicago right away.
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Also Read: Passive Commercial Real Estate