Commercial real estate includes office space, multifamily housing units, warehousing, manufacturing facilities, retail, hospitals, etc. Have you considered investing in these types of properties? You may want to diversify your investments or create a passive income that allows you to leave your job. Whatever your reason, you should understand the ways you can earn money on your commercial property investments.

Property Value Appreciation

Most property increases in value over time. The amount of this increase depends on its type, location, maintenance and condition. However, gains are not guaranteed, and some properties do actually lose value, especially those subject to economic forces outside your control.

Fortunately, land is a scarce resource that is consistently in demand, so in most cases, prices rise as demand rises. Therefore, if more businesses move in next to your retail space or the population in your community begins growing, your property will likely increase in value.

You can also add value to your real estate by making improvements. Any time you update your property, whether you make simple cosmetic improvements such as updating the paint, lighting, flooring, etc. or major improvements, such as changing floor plans and doing a complete rehab or remodel, your property value increases. Often, this increase in value is at or above the dollar amount you put into the property.

As your property value increases, you can sell for a profit, or you can leverage that value to purchase additional properties. You can also typically charge higher rent.

Rental Income

In any investment property you purchase, your goal should include making money by renting out the space. Some properties have one tenant, while others have multiple tenants. The amount of interest and principal you pay on the mortgage, as well as your operating expenses, can impact your rental income.

In addition, if you hire a property manager to handle the day-to-day operations of your rentals, your expenses will increase. However, if you do not have the legal, accounting and real estate knowledge necessary to manage the properties yourself, you can experience greater cost increases. However, these professionals can help you keep your properties occupied, so your vacancy rate remains low.

Your goal should include maximizing your income while reducing your risk. Therefore, choose to purchase properties in areas with low vacancy rates. The rent payments you receive increase your cash flow and income, which you can then reinvest.

Although success is not guaranteed, you can become a smart, profitable commercial real estate investor if you put in the time and gain industry knowledge.