Why investing in commercial real estate to diversify your investment portfolio lowers risks & management time, increases ROI, and generates rental income, per Tim Vi Tran, SIOR, CCIM.
Summary
For many investors, “diversification” has come to mean some mix of stocks, bonds, index funds, gold, silver, and lately a sampling of crypto or startups.
What’s often missing is direct ownership of income-producing commercial property: industrial buildings, office/R&D, warehouse, flex, lab, retail and multifamily (5 units or more is considered commercial). Not a REIT. Not a fund. Actual bricks-and-mortar in a market you understand.
In this article, we’ll look at why investing in commercial real estate can be a powerful way to diversify beyond the stock market, precious metals, crypto, and even residential rentals, especially for investors who value control, cash flow, and tax efficiency. We’ll also contrast commercial with residential property, and outline how The Ivy Group approaches investment decisions for Silicon Valley and Bay Area clients.
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What “Investing in Commercial Real Estate” Really Means Today
When we talk about investing in commercial real estate, we mean direct ownership of a physical asset of a building or condo unit—instead of buying shares of a REIT, or wiring money into a blind pool syndication.
That distinction matters, because some U.S. households that have exposure to commercial property get it through REITs, instead of direct ownership, because it’s less expensive and easier to buy a ticker symbol than purchase a building.
Direct ownership is different:
- You own a specific asset in a specific market.
You’re choosing the city, the submarket, the tenant base, and the building systems rather than a fund manager.
- You control the business plan.
You decide the leasing strategy, capital improvements, debt level, and when to refinance or sell. Direct owners can actively use tools like cost segregation and 1031 Exchanges to reduce taxes when appropriate, with professional guidance.
- You live with illiquidity and concentration risk.
Unlike a REIT, you cannot sell 3% of your building on any given day. You are tying capital to a single commercial property or a small group of CRE assets.
For the right investor —typically high-income professionals, business owners, family trusts, and long-term investors—this tradeoff can make sense: less liquidity in exchange for greater control, potentially higher income yields, and better alignment with your tax and legacy goals. (CEP Multifamily)
At The Ivy Group we specialize in helping investors first evaluate specific industrial, office, warehouse, tech flex space, R&D buildings, retails and multifamily, then match with the right buyers, sellers, landlords, and tenants with deal structure in Fremont, Silicon Valley and the greater Bay Area.
Why Many Long-Term Investors Are Pivoting From Stocks and Crypto to Investing in Commercial Real Estate
Over the last several years, investors have watched:
- The government print money endlessly;
- The erosion of the U.S. dollar;
- Public equity and tech valuations swing violently;
- Crypto spike and crash in repeated cycles;
- “Safe” bond portfolios suffer in a changing rate environment, per Investopedia
At the same time, the commercial real estate market has been going through its own reset. For some years post-COVID, higher interest rates and work-from-home shifted office use, pushing values down in several sectors, particularly older class B and C office stock. Many institutional players describe parts of the market as “repriced” and, in some cases, “undervalued”, as stated in an article in The Wall Street Journal.
Yet some fundamentals remain attractive in spite of market ups and downs:
- Income stability.
High-quality commercial assets, especially industrial, logistics, AI robotics, and data center-related properties, continue to benefit from long term leases and structural demand for e-commerce, robotics, EV, AI, and cloud infrastructure, according to JPMorgan Chase.
- Lower correlation with stocks.
Over time, private commercial real estate returns have shown lower volatility than public equities, making them a useful diversifier in a multi-asset portfolio. (kenwoodmgt.com)
- Inflation hedge potential.
When leases include structured annual rent increases (typically 3–5% is common in many markets) and operating expense pass-throughs, net operating income can rise in nominal terms as rental rates rise. (see case studies in the Ivy courses, for a small fee).
Compare that to:
- Stocks and ETFs – liquid, easy to diversify, but driven by market sentiment and macro climate you cannot control.
- Startups and private tech – extremely high risk; many early-stage companies fail outright.
- Crypto and “stable” coins – promising technology in some cases, but still speculative and exposed to regulatory (or lack thereof), platform, and counterparty risk. Even major banks experimenting with tokenized assets and stablecoins are doing so cautiously and within strict institutional frameworks, per Reuters.
By contrast, many of our clients prefer the quieter compounding of a well-leased industrial or flex building in Fremont, Silicon Valley, and the Greater Bay Area:
- A 5–10-year lease with annual rent bumps;
- A creditworthy tenant(s);
- Triple-net or modified-gross structure to pass through operating expenses;
- Thoughtful use of depreciation and, where appropriate, cost segregation and tax benefits from OBBBA to improve after-tax cash flow.
It is not flashy. It is not a meme stock. But over 10–20 years, it can be remarkably powerful.
Commercial vs Residential Investment: Two Very Different Businesses
Investors often start by asking, “Should I buy a rental house, or a small commercial building?” On the surface, both are “real estate.” In practice, they are two different businesses.
Here is how we often frame it with clients.
1. Lease term and income stability
- Residential:
- Typical lease (short term): 6–12 months.
- Tenant turnover can be frequent. Every turnover means vacancy, cleaning, leasing fees, and usually some repairs.
- Commercial:
- Typical lease (long term): 3–10 years, often with built-in annual rent increases.
- Many tenants renew to avoid moving costs and disruption to their operations.
- For a strong asset and tenant, the income can look more like an upward trend chart than a roller-coaster.
2. Rent structure and expenses
- Residential:
- Tenants usually pay one rent number—say $3,500/month.
- On top of that, the owner must separately cover mortgage, property taxes, insurance, HOA (if any), and most major repairs.
- It is rare (and often impractical) to structure a true “triple-net” lease on a single-family home.
- Commercial:
- In many industrial, flex, and retail properties, leases are triple-net (NNN):
- Tenant reimburses property taxes, insurance, and common area maintenance (CAM);
- These pass-throughs sit on top of the base rent.
- Other common lease structures such as modified gross or full service leases also allow landlords to recover a large share of operating costs through rent.
In plain English:
With commercial, your tenant often pays the operating expenses, and your rent can be closer to true income. With residential, your rent has to cover everything.
3. Who handles repairs and headaches?
- Residential:
A leaky sink, a broken heater, a downed electrical line—those calls come to you (or to your property manager, who bills you). Disputes about what is “normal wear and tear” are common.
- Commercial:
Well-drafted leases usually push day-to-day repairs and maintenance obligations to the tenant. The business tenant treats these costs as operating expenses.
- In a good triple-net industrial deal, the tenant may even coordinate and pay for major items like lighting replacements, non-structural repairs, or certain code upgrades—with landlord consent.
That is one of the reasons seasoned investors who own both types of assets often say: “The commercial building is less work than my residential duplex.”
4. Tenant mindset
- Residential tenant:
- Paying rent out of after-tax income;
- Highly sensitive to every dollar;
- Emotionally attached to the space as “home.”
- Commercial tenant:
- Pays rent as a business expense, ideally from operating revenue;
- Compares rent to revenue and operational productivity, instead of to the unit next door;
- Motivated to protect the premises so the business can operate smoothly.
That difference shows up in everything from rent collection to how quickly issues are resolved.
5. Financing and scale
- Residential loans tend to offer lower interest rates and higher leverage, but underwriting can be rigid and more driven by your personal income.
- Commercial loans are often 1%–1.5% higher in rate, with shorter amortization or balloon features—but they also underwrite the property’s income and the tenant strength as much as the borrower. (YouTube)
For investors who already have a strong personal balance sheet and are comfortable with leasing properties, over time, they can scale into fewer, larger assets instead of juggling ten single-family rentals scattered across the Bay Area.
Common Alternatives: Stocks, REITs, Startups, Crypto — and Where Direct CRE Fits
A serious diversification conversation compares investing in commercial real estate with the other assets already in your portfolio.
Public stocks & ETFs
- Pros: Liquidity, low transaction costs, instant diversification.
- Cons: Mark-to-market volatility, headline risk, limited control over underlying business decisions.
REITs (public and non-traded)
- Pros: Lower minimums, built-in diversification, exposure to sectors like data centers, healthcare, self-storage, etc. (REIT.com)
- Cons: Share prices can move with the stock market; investors have little control over leverage, property selection, or timing of sales; dividends often yield less than typical cash-on-cash returns from direct private holdings. (CEP Multifamily)
For many Ivy Group clients, REITs can be a complement rather than a substitute for owning their own commercial building.
Startups, angel investing, and private equity
- Pros: Potential for very high upside.
- Cons: High failure rates, long illiquid holding periods, and binary outcomes (“zero or home run”).
Crypto, stablecoins, and digital assets
- Pros: Liquidity, potential for rapid gains, interesting technology.
- Cons: Extreme volatility, regulatory uncertainty, platform and counterparty risk. Even as major institutions experiment with tokenized debt and other instruments, they do so under tight controls—an acknowledgement that this is still an emerging space. (Reuters)
Precious metals and commodities
- Pros: Long-term store of value and inflation hedge.
- Cons: Zero cash flow; value is driven entirely by price appreciation and sentiment.
Direct commercial ownership slots into a different role:
- Cash flow: Target current income, not just paper gains.
- Control: You choose the market, the building, the tenant, the lender, and the strategy.
- Tax tools: Depreciation, potential cost segregation, and 1031 Exchanges can materially change your after-tax outcomes when implemented with professional advice. (Investopedia)
It is not “better” per se in every situation. But for investors with the right capital base and time horizon, and/or inheritance strategies for passing generational wealth (explained in our article in the Ivy courses), CRE investment can balance out a portfolio for the long term.
Why Many Residential Investors Eventually Migrate to Investing in Commercial Real Estate
A pattern we see often:
- An investor buys one or two homes as rentals.
- It goes well enough at first—until something breaks at 11:30 p.m. on a holiday weekend, or a tenant stops paying rent, or the city implements stricter rent control.
- After managing three, five, ten separate doors across multiple cities, they begin to ask, “Is there a more efficient way to deploy my capital?”
That is usually when the conversation shifts from “another rental house” to “an industrial property, a flex building, or a multi-tenant office / R&D asset.”
Key reasons they migrate:
- One roof instead of ten;
- Business tenants instead of household renters;
- Leases that share or shift operating expenses;
- Longer terms and predictable rent increases;
- The ability to professionalize management with a third-party firm, and charge management as an operating expense.
From The Ivy Group’s perspective, that is also where our experience as both brokers and investors is most valuable. We have experienced the reality of both residential and commercial ownership. We know the difference between a “good enough” tenant and the kind of credit tenant that a bank and an appraiser will reward.
How The Ivy Group Evaluates Direct Commercial Investments
Every investor and property is different, but our process has consistent themes:
- Start with your life first, instead of the tax code
As explained in our article in the Ivy courses, we begin with questions like:
- What are you trying to accomplish over the next 5, 10, 20 years?
- How active do you want to be as a property owner?
- Is this about cash flow, legacy, partial retirement, or a strategic property for your own business?
Only after that do we layer in tax tools and leverage options.
- Underwrite the building and the submarket
In Fremont, Silicon Valley, and the Greater Bay Area, we evaluate:
- Proximity to transportation such as freeways, ports, major employers, and talent pools;
- Zoning and use flexibility (industrial, R&D, lab, office, retail);
- Building infrastructure: power, clear height, loading, HVAC, parking, etc;
- Association quality (for condos and business parks);
- Replacement cost vs. purchase price.
- Underwrite the tenant(s)
Whether you are buying a fully leased asset or planning a lease-up, we pay special attention to:
- Financial strength, profitability, and balance sheet;
- Business model resilience (for example, advanced manufacturing, robotics, EV, biotech, logistics automation, and AI infrastructure in Fremont and Silicon Valley);
- Lease terms, options, and covenants;
- How the use aligns with the building and the neighborhood.
- Structure leases for durability
We help owners structure leases that:
- Align lease term length with debt financing timing and business plans;
- Include appropriate annual increases and NNN recoveries;
- Allocate maintenance and capital responsibilities clearly;
- Protect our clients in assignments, subleases, and sale scenarios.
- Coordinate with your CPA and other advisors
Tim Vi Tran’s CCIM training emphasizes rigorous financial and tax-sensitive analysis, while the SIOR designation underscores deep transactional experience at the institutional level. Together with your CPA and attorney, we help you understand:
- How depreciation and, where appropriate, cost segregation may affect your after-tax yields;
- Whether a future 1031 Exchange might make sense;
- How a new asset aligns with your overall estate and risk planning.
Take Aways
- Investing in commercial real estate requires expertise.
Done well, it can provide durable cash flow, a hedge against inflation, and genuine diversification away from purely financial assets.
- Direct ownership is different from REITs and syndications.
You trade liquidity for control, customization, and the ability to design your own tax and leasing strategy with a trusted CRE advisor.
- Commercial and residential are fundamentally different businesses.
Lease structures, tenant behavior, expense recovery, and management intensity all tilt in favor of commercial for many long-term investors who can tolerate some vacancy and illiquidity.
- Tenant quality and lease structure can be an important value-driving factor.
A strong tenant on a well-crafted lease can sometimes matter more than the cap rate or a lower interest rate.
- Partner with a CRE professional.
An advisor who is both SIOR and CCIM, and who invests personally in the same markets where you are buying, can help you evaluate “what’s for sale,” and whether that asset is right for your life and portfolio.
When you are considering shifting part of your capital from stocks, startups, or residential rentals into direct commercial ownership, a structured conversation can clarify what role commercial property should play for you, and how to approach it with eyes wide open.
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About The Ivy Group
The Ivy Group specializes in commercial sales, leasing, and investment advisory across Fremont, Silicon Valley, and the Greater Bay Area. With over 100 years of combined experience, expertise and designations including SIOR and CCIM, The Ivy Group provides strategic guidance for complex transactions in commercial real estate.
When you need to sell, buy, or lease, The Ivy Group is ready to help you reach your goals. Contact us with your next real estate needs.
Disclaimer
All information shared here in this article, and in all blogs, case studies, and courses offered by The Ivy Group are for general education only, not as tax, legal, or investment advice. Please seek professional advice from tax, accounting, legal, and other professionals.
Copyright © 2026 by Tim Vi Tran, SIOR, CCIM. All rights reserved.
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