If you’re looking for a way to build a solid financial footing and passive income streams, most experts will tell you that a long-term asset allocation strategy is key. There are lots of different investment avenues you can take to build wealth or just add some stability to your finances but pouring all of your spare cash into the tumultuous stock market or cryptocurrency could be a risky proposition. After all, it’s not uncommon for these markets to take a nosedive on occasion, and when they do, they take your cash with them.
That said, not all investments are so volatile. Some types of investments, like commercial real estate, can bring stability to one’s portfolio while offering significant upside potential if the investment plan is executed the right way. In fact, long-term commercial real estate investment returns can and often do outperform other types of investments.
As of 2021, the average 25-year returns on commercial investments were about 10.3% annually, according to a report from the National Council of Real Estate Fiduciaries. That is about 0.7% higher than the average 25-year annual return of 9.6% from the S&P 500 index. Low volatility asset classes like these offer investments that are less likely to change quickly—particularly for the worse.
There are tons of different commercial real estate opportunities to choose from, making it simple to diversify a portfolio. Office properties, multifamily rental properties, retail spaces, mixed-use buildings, and industrial properties are all commercial real estate investment options. Plus, there are a variety of ways to get into commercial real estate investing—and not all of them rely on an investor shelling out the cash and energy to purchase and manage a commercial building. Real estate investors can certainly buy and manage their own properties, but they also have the option to help directly fund other investors’ projects or buy into crowdfunding opportunities. This can help to further mitigate the risk that comes with buying and managing commercial real estate investments—and offers an easy return on the investment when the property performs as expected.
Before you dive headfirst into the world of commercial real estate investing, though, it’s important to understand the key terms that come along with it. To get you started, EquityMultiple compiled a list of 20 important terms that a commercial real estate investor—whether new or a seasoned pro—should know.