With the real estate industry growing at unimaginable rates, there is a lot of money to be made from this market. Commercial real estate offers investors several ways through which they can make some profit. However, most people have no idea of these options. So, how do you make money from commercial property?
How Do You Make Money From Commercial Property?
The most common way for investors to make money from commercial property is by getting others to occupy your property and then charging them a fee over a specific period. This income model works for commercial properties like apartment buildings, parking lots, hotels, or shopping centers.
However, this is one of the many ways investors can make money through properties. Other ways include:
- Selling the properties for a higher price than it was bought
- Taking advantage of the tax-related benefits available to investors
- Offering exceptional services to tenants for a premium.
Six Ways to Make Money From Commercial Property
There are several types of commercial real estate properties ranging from
- Office buildings
- Multifamily apartment buildings
- Shopping centers
- Hotels.
These various property types offer several ways to make gains, with some of these ways being more specific to some property types than others. However, some can be applied to a wide range of property types. Here are six of the best ways investors can make money from commercial buildings:
Buying, Holding, and Selling
This traditional way of acquiring wealth from commercial property is one tried-and-tested method on this list. Arguably one of the oldest methods, buying and holding commercial properties, is founded on a very simple principle –the appreciation of landed properties.
To make a profit through this method, all you have to do is buy a commercial real property, hold on to it for some time, often for some years, and then sell it when the property’s value has increased.
While this is a tried-and-tested method, it can be pretty time-taking as many properties do not appreciate significantly until after several years. It will often require investors to be extremely patient.
Occupancy Charges
This is one of the most common ways to gain from commercial real property and applies to most commercial property types. All you have to do is acquire a commercial property, such as residential apartments, hotels, parking lots, office buildings, and shopping centers, and get other people to occupy them.
You then charge these people for occupying the property over some time. The period you set for will slightly differ based on the specific property type. For example, for a hotel, you will charge per night. For a parking lot, you could charge per hour or per day. For apartment buildings, you could set monthly rent.
For office buildings, you can lease out floors to businesses or even multiple businesses depending on the needs of the business, as some businesses do not require as much space as others. You could consider managing the property yourself or hiring a management company instead, depending on your preference.
Additional Services
Investors can make a lot of money from commercial properties by offering additional services to tenants or customers, like hotels, and charging a fee for those services. You can own a parking lot that services an office building or require that your tenants patronize another service you provide.
Value Addition and Flipping
Investors can also make gains from flipping commercial properties. This method of acquiring wealth from commercial buildings is similar to the buying, holding, and selling method. However, instead of waiting for the property to appreciate on its own, investors increase the value of the property themselves.
This is typically done by identifying undervalued properties, making necessary repairs, and then selling them at higher prices to make a profit. This method will require investors to be proficient in identifying the right kind of buildings and making the right kind of renovations.
While this method can be applied to other property types, it is more common with residential buildings.
Advertising
As a result of the fact that the world has transitioned into digital marketing, one may be quick to assume that there is no money to be made from print media such as billboards. However, this is not the case, with about $8.5 billion spent on billboards and outdoor advertising in 2022.
Depending on the location, owners of commercial properties can easily rent out a part of the property for billboard advertising. For a hotel, you can choose to sell access to customers to advertisers in ways that do not breach their privacy.
If you own an office building, you can publish a directory containing the services your tenants offer and allow other businesses to pay for advertisement slots.
Maximizing Available Tax-Related Benefits
One of the best ways to profit in the commercial buildings industry is by leveraging the several tax-related benefits available to investors. While this method may not precisely increase the money that immediately flows into investors’ pockets, it minimizes the money that goes out of it.
Tax benefits from interest expense, depreciation, and capital gains help investors retain more money that can be put into growing their commercial property portfolios.
If you are interested in getting into the commercial real estate space, especially in the Cincinnati-Dayton area and other Ohio markets, you need expert guidance from experienced hands like Si Vales Valeo Real Estate. We advise and assist you along every phase of real estate acquisition, CRE analysis, ownership and disposition.
Related Questions
What Type of Commercial Property Is Most Profitable?
The most profitable types of commercial properties are those with lots of tenants. These typically include office buildings, parking lots, and storage facilities.
Can Commercial Real Estate Make You a Millionaire?
Yes, investing in commercial real estate can make you a millionaire. It is one of the best and most effective paths to building wealth.
Conclusion
There are a lot of proven methods through which investors can make money from property. It is essential that you understand the specific property types in your portfolio and how best to make money from them. Ensure you seek expert advice where necessary.
