Commercial real estate (CRE) has been a popular investment option for many years, offering higher returns than residential real estate (RRE) in most cases. As a real estate investor, it’s important to understand why CRE has a higher ROI and what that means for your investment strategy.

One of the main reasons why CRE has a higher ROI is due to the higher lease rates that commercial tenants are willing to pay. Commercial tenants are usually businesses, which means they are generating revenue and can afford to pay higher lease rates than residential tenants. This results in a higher rental income for the property owner and ultimately a higher return on investment.

Another factor that contributes to the higher ROI of CRE is the longer lease terms that are typically offered to commercial tenants. Residential leases are usually for one year or less, while commercial leases can range from five to ten years or more. This longer lease term provides greater stability and predictability of income for the property owner, which in turn results in a higher ROI.

In addition to higher lease rates and longer lease terms, CRE also offers potential for value-add opportunities. Value-add opportunities refer to properties that have the potential to increase in value through renovation, repositioning, or other strategic changes. These opportunities are more common in the CRE market than in the RRE market and can result in significant returns for investors.

Another factor that can contribute to the higher ROI of CRE is the potential for tax benefits. CRE investors can take advantage of deductions such as depreciation, mortgage interest and property taxes to reduce their tax liability and increase their ROI.

So, what does this mean for you as a real estate investor? It means that CRE should be considered as part of your investment strategy, particularly if you’re looking for higher returns. However, investing in CRE requires a different approach and skill set than investing in RRE, so it’s important to do your due diligence and work with experienced advisors who can help guide you through the process.

At Gilko Capital, we specialize in commercial real estate investments and can help you navigate the complex world of CRE. Our team of experts can assist with everything from property selection and acquisition to financing and asset management. Contact us today to learn more about how we can help you maximize your ROI in commercial real estate.