There are a lot of good investment opportunities found in Commercial Real Estate. Commercial properties are any type of real estate that is intended for capital gain or rental income. This includes retail buildings, office buildings, warehouses, industrial buildings, apartments or condominiums, and mixed-use properties. But before trying your hand on this type of property investment, it’s important for you to know and understand its pros and cons. From potential benefits to possible downsides, here are some valuable must-knows you should equip yourself with before investing in commercial real estate.
Pros of Investing in Commercial Real Estate
Investing in commercial real estate gives you the advantage of higher ROIs. While single-family home properties only get annual returns of 1-4%, commercial properties’ potential returns reach up to 6-12%, depending on the area.
Take a commercial retail building for example. As business owners, tenants are more inclined to keep the space, and ultimately their businesses, in top shape. This is an advantage for the commercial real estate owners and their investment, as their properties are seen to be well taken care of.
Limited Operating Hours
Another perk of investing in commercial real estate is the limited hours of operation. With most businesses closed at night, commercial property owners can rely on alarm monitoring systems, unlike residential properties which require work 24/7.
Unlike residential leases which last between 6 to 12 months on average, commercial tenancy can range between three to ten years. It’s also advantageous to you as tenants provide consistent rent and are unlikely to vacate when their business is already established.
Cons of Investing in Commercial Real Estate
Bigger Initial Investment
Investing in commercial real estate is much harder to get into as you’ll need to provide a larger initial capital—and it doesn’t stop there. Once the property is acquired, there are capital expenditures to worry about. With more tenants, there will also be more facilities to oversee and maintain.
More tenants mean more potential issues. As a commercial property owner, you will need to make time to accommodate each of your tenants’ needs—like helping them with their leases, securing their safety, and handling their maintenance issues.
Enlist Professional Help
Typically, licensed professionals handle maintenance issues in commercial real estate properties. If you’re not planning to handle this on your own, best to hire professionals to do the job. This will be an addition to your expenses, so it’s best to look for a capable management company that can keep up with your property’s needs.
Properties frequently visited by the public run the risk of having more accidents happening around the area. People can get hurt and your property can be damaged anytime—things that you’ll be accountable for. Costs for your property’s insurance will definitely put a dent in your expenses, so it’s best to assess everything first before closing any deals.