If you’re seeking security for retirement, income for a college fund, or simply a form of primary or residual income, you need to focus on the right investment strategy.

The stock market is considered one of the most effective investment vehicles for people of all ages. However, it’s often possible to find more value in commercial real estate. Real estate has the potential to provide stronger returns with less risk, and more options for diversification.

As you decide the best option for your present situation and future, consider the advantages of real estate investment.

What Makes Real Estate So Appealing?

With stocks, you effectively have zero control over the asset that you invest in. Real estate offers a better alternative where you can take possession of a physical asset where you are accountable, but also in control.

Of course, every investment requires careful consideration, and you will need to account for factors like returns, property management, and the pros and cons of the commercial real estate market.

How Do the Returns Compare to the Stock Market?

When looking at data over the last ten years, the S&P/TSX Composite Index, a trusted measure of U.S. and Canadian markets, has provided an average return of 7.9% before tax. Returns aren’t guaranteed, and we can see this when looking at the market over 2018, where the same index lost -8.9%.

Stocks are volatile and it takes a lot of time and experience to build a robust portfolio. As an independent and inexperienced investor, there’s a very real possibility that you won’t see a significant return on your investment over your lifetime.

Thanks to a higher level of stability, real estate significantly outperforms stocks. When looking at averages since the year 2000, real estate investments have returned just over 10% annually, compared to 5% for stocks across the board. This indicates that there’s twice the potential available in real estate. And, for many people, coming to grips with the commercial real estate market will be less time-intensive than stocks.

If you want to build real long-term wealth, real estate should be a priority.

The Return Comes in Two Ways

Stocks provide returns through increased value and subsequent sales of shares. Some stocks also provide dividend returns.

Real estate also offers a two-tier system of returns. Property value appreciation can increase your net worth. Well managed properties can generate an average of 3% to 4% in appreciation annually.

In addition, commercial real estate ownership will allow you to generate rental income. The amount can vary significantly depending on the type of property. Retail properties such as plazas and malls can generate massive returns but require a high level of investment. Smaller investments like condominiums and apartments can be more affordable while still providing a sizable passive income.

Commercial property owners can generate an average annual return of 8% to 12% from rent alone.

This means that in addition to commercial real estate becoming more valuable, you will also generate income to put towards savings and other investments. If you ever decide to sell the property in the future, you could enjoy a massive return in a lump sum.

Why Aren’t More People Engaged in the Commercial Real Estate Market?

Almost half of all people who have the means to invest in real estate are put off by a perceived lack of technology and support to make the process easier. The millennial demographic is extremely interested in commercial real estate but also sees the same challenge.

There are barriers for first-time investors, whether investing in existing properties or new developments. Some of these include:

  • High capital and experience needed to develop properties from the ground up.
  • High hands-on time to manage properties, particularly residential-zoned real estate.
  • Perceived difficulty in obtaining financing.

Despite these barriers, commercial real estate remains compelling.

Commercial Real Estate is an Opportunity That Shouldn’t Be Ignored

The barriers to entry can be overcome. Property management firms can take care of the day-to-day running of rental properties. The fee will reduce your bottom-line return, but you will save time and still come out better off.
Financing is entirely possible when you work with the right lenders. A commercial mortgage broker is a must-have. With a broker, you will get access to unconventional loans at competitive rates. You’ll find options that simply don’t exist with the larger banks.

Real estate, like any investment, comes with some risk. Research and due diligence are always required. With the right support in the form of lending professionals, you can take a significant step to secure your financial future.

To book an appointment to discuss your needs and learn more about how Mortgage Capital Investment can help you, call 416-877-7438 today, or contact us.

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Updated: July 07 , 2024

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