Should You Be Investing In Commercial Real Estate?
Investing in commercial real estate can offer you with lots of benefits including tax reduction, increase your revenue as well as expand your portfolio. It can be a risky business but all you need is to have a proper understanding of the risks and benefits, enough advice from the experts and plenty of time and effort to do your research. First, you must know what property is considered commercial real estate. It generally includes industrial, retail, office space and other land or businesses.
Some people start off with residential since they are more used to buying homes but investing in commercial real estate is somewhat similar. There are just different rules and terms in commercial market. It offers more security which is usually 6 to 12 months. Net are also higher for commercial landlords because the leases pass the obligation for the cost of maintenance, insurance and others to the tenants.
The running cost of commercial is a lot higher than residential investment. If residential landlords avoid long rental agreements, this is certainly welcomed by the owners of commercial real estate to increase the value of the property and usually the leases involve stronger agreements.
Commercial property can be found easily but for you to yield good returns, you must need to have careful research to make the right choice for this investment.
Check out the demographics and the area of the property. For example, you should look at the nature of the motorways as it is known to have a huge impact on industrial land. However, location can vary over time. The improved motorways can help in making it more accessible to users and tenants and enhance the propertys worth. The downside though, for example, a new shopping area may contribute to the improvements of the location but will also lower the value of the nearby shops. So it is important for the investor to look out for the changes that might be influence to the location in the future.
You should also consider the risk of vacancy. The extent of lease terms for the existing tenants and if cases happen that other tenants will not extend the lease of terms when renewal comes? The ROI or the return of investment might be good at first but the lease will soon expire after purchase and some tenants will not exercise the renewal option. So it means that you may experience vacancy until a new tenant is found.
It is essential to establish leverage when investing in commercial real estate. It is riskier to purchase a building with one tenant than a shopping center with many tenants, but it also depends of course on the tenant. For example, a government or national corporation as a single tenant is likely to have invested in both location and the corporate signature, meaning it will offer more stability. The investor should be wary with having single tenants because their income with depend solely it and riskier with vacancy period compared to a property with many tenants.
There are a lot of things one should learn when investing in commercial real estate. Just like any other investment, due diligence is required so you can continually maximize its potential. It is important to seek help and advice from the experts to assist you through the process. It may mean a little cash flow but can decrease the risk and provide you additional benefits in the long term.
by: Claud Pearce