Any type of property, be it residential or commercial can be a lucrative investment opportunity. Along with huge financial rewards, investing in commercial real estate has numerous risks associated with it too. every property type has its own risk/reward profile and you should choose an investment property which suits you best. Understand the pros and cons before investing in commercial real estate to ab able to make a better decision.
What is a commercial property?
Generally, commercial properties are the ones that are leased out to provide a work space such as offices, retail spaces, shopping malls, restaurants and multi-use buildings. Although it may seem complicated at first, but commercial real estate can prove to an interesting form of investment opportunity once you get the hang of it.
Benefits of investing in a commercial property
Commercial properties tend to be situated in the center of the city which makes them favorable locations for renting out. The potential to generate income is the best reason to own a commercial property. Business tenants are capable of paying more than residential tenants, therefore, a commercial property owner earns more money.
Longer lease terms
Businesses do not prefer to change locations every now and then, therefore, commercial real estate investors benefit from longer lease terms. This provides a steady income stream for the commercial property owner as commercial leases generally go by a longer contract period.
Increase in property value
A major benefit of investing in commercial real estate is that the property value increases over time. To generate a decent income, many property owners charge a rental amount that is required to cover the expense of operating the property. Then, they make some real money when they are ready to sell the property after the value of the property has increased. This way commercial real estate owners reap immense benefits from a single transaction.
Drawbacks of investing in a commercial property
Bigger initial investment
Acquiring a commercial property usually requires a bigger initial investment than buying a residential space within the same area, so it might be difficult for some to grab the opportunity due to financial constraints. Also, you will be required to renovate or maintain the property in order to get it leased in a good price. Keeping the costs in mind, you should only invest in commercial properties if you have a plan to cover all the expenses.
Unlike residential spaces, commercial spaces are not specifically for a single purpose. With residential areas, you can ascertain the tasks that are going to be carried out for a daily living but with commercial properties, you will be required to make extensive refurbishments before a new tenant can move in. As each business has its unique needs, it will require the space to fulfill its purpose.
Professional assistance required
Another cost that will be added to your expense list is the cost to hire someone to handle the maintenance issues of your commercial property. You will definitely not be able to handle the emergencies and the repairs all by yourself and you will be required to seek assistance from a professional property management company.