Invest Like The Pros - How To Reinvest Residential Returns Into Commercial Real Estate Investments

Investors, both institutional and private, have gravitated into Commercial Real Estate (CRE) because to its high returns and investment portfolio diversification, which protects investments from market volatility.

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Invest Like The Pros - How To Reinvest Residential Returns Into Commercial Real Estate Investments

Despite a wild journey in 2021, India’s real estate sector is poised for a solid recovery. Residential and commercial real estate are both optimistic about long-term growth. People are always arguing whether they should invest in residential or commercial real estate. Because of products like fractional ownership and REITs, investing in Commercial Real Estate (CRE) properties has become more cost-effective and time-efficient. CRE rental revenue may provide a steady stream of cash. However, experts recommend that investors first analyze their financial health, investing goals, risk-bearing ability, and profit-generation timeframe.

Also Read: Investing 50L? Here Are Fractionally Owned Commercial Real Estate Opportunities in India

Is investing in commercial real estate a good return?

The value of CRE properties is between Rs 25 and Rs 30 crores. CRE investing has historically been restricted to UHNIs and HNIs because of the high price size. New business structures, such as fractional ownership and REITs, have, nonetheless, democratized CRE as an asset class. While the normal minimum amount of capital required to invest in residential property is between Rs. 50-70 lakh, with the cost, varied depending on location, fractional ownership allows owners to purchase a share of commercial property for as little as Rs. 25 lakh.

There is no one-word solution to this. “While it is true that commercial real estate profits are substantially bigger, joining the CRE sector as an individual investor is difficult.” Legal issues, subject expertise, and financial components are all obstacles that ordinary investors face. However, they may currently be avoided by using REITs or partial ownership.

Given the increased demand for commercial real estate and the bright future outlook, I would urge individuals considering a second residential property as an investment to instead consider investing in commercial real estate, which would provide considerably greater returns.

Also Read: Commercial Real Estate VS Residential Real Estate

Average returns in last 5 years

The value of CRE properties is between Rs 25 and Rs 30 crores. CRE investing has historically been restricted to UHNIs and HNIs because of the high price size. New business structures, such as fractional ownership and REITs, have, nonetheless, democratized CRE as an asset class. While the normal minimum amount of capital required to invest in residential property is between Rs. 50-70 lakh, with the cost, varied depending on location, fractional ownership allows owners to purchase a share of commercial property for as little as Rs. 25 lakh.

The Benefits and Drawbacks of Investing in Commercial Real Estate

Warehouses, manufacturing units, retail spaces, parking lots, schools, malls, and movie theatres are just a few examples of possible assets in CRE.

Pros

A consistent source of high rental income: The typical rental income of residential real estate is 1-2 percent, but that of commercial real estate is 8-12 percent, delivering a threefold larger yield.

  • Professionalism: Because the tenants in CRE are often well-established enterprises, one may expect professional behavior.
  • Long-term commitments: The lease duration of commercial tenants is typically 10-20 years, providing investors with a solid and predictable stream of revenue on their investment.
  • Appreciation Value: When compared to other property kinds, commercial real estate gives outstanding appreciation over a longer length of time. Investing in a quality commercial property through REITs or fractional ownership may also deliver great profits with a much smaller and more manageable cost.

Cons

  • Expensive Ticket Size: With values ranging from 25-30 crores and above, the minimum investment required in CRE is often exorbitantly high and therefore beyond of reach for the average retail investor.
  • Asset management: Investing is more than simply putting your money in a certain asset or owning it; it is also about guaranteeing seamless end-to-end asset management, which includes renters. In the case of CRE, renters are corporations rather than people, which complicates asset management because retail investors typically lack the professional competence required to manage commercial properties.
  • Difficult entry: Due to complicated regulations and restricted market prospects, investing in CRE might be difficult for a naive lone investor.
  • Choosing a suitable property: Choosing the ideal property and geographical location necessitates substantial market study and understanding. As a result of a lack of necessary skills and market understanding, a retail investor may find it incredibly difficult to invest in CRE.
  • Taxation implications: Rents collected from commercial real estate are typically taxed under “income from other sources” under the relevant tax slab for investors under current income tax legislation.

Also Read: Commercial Real Estate ROI

Despite its growing popularity among investors, fractional ownership of commercial real estate is still in its infancy, hence there is no defined tax law for this asset type. This spike in interest is also due to a shift in focus among NRIs and HNIs toward commercial real estate. The commercial is growing more popular in Chandigarh, for example, with the introduction of the IT/ITEs industry, quickly increasing infrastructure, and world-class education and medical services. Airport road Mohali, Zirakpur, and New Chandigarh are three significant future investment destinations in Tricity. We anticipate a future need for acceptable quality office premises. Many large corporations will likely abandon long-term leases to decrease operational expenses and relocate to tier II locations. If this occurs, more commercial space will be available in these locations. 

Assetmonk is one of India’s fastest-growing commercial real estate investment platforms, with opportunities in important locations including Bangalore, Chennai, and Hyderabad. Assetmonk provides well-vetted alternatives with IRRs ranging from 14 to 21%. Visit us today to begin your investment with us.

How To Reinvest Residential Returns Into Commercial Real Estate Investments FAQ'S:

One of the simplest strategies to avoid capital gains tax when selling a home for profit is to reinvest the whole proceeds in another property within a certain time frame. The profits can only be re-invested in residential buildings, not commercial ones.

Over 10 years, the average return on real estate investment is 10%. This is based on data from several real estate research businesses that compared returns in India’s nine largest cities. The fees, however, may differ depending on the city.

The maximum capital gain that may be re-invested in another property and earn complete exemption is Rs 2 crore. If your capital gain exceeds Rs 2 crore, you must pay tax on the excess. Remember that you can only use this option once in your life.

Residential structures have a rental yield of 2 to 4 percent, whereas commercial premises have a rental yield of 5 to 12 percent. Commercial assets outperform residential buildings in terms of capital appreciation, even in favorable locations.

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