Why Commercial Real Estate Investing is Beneficial
Published on October 9th, 2014 | by Joan Makai
Real estate investments can be broadly divided into investments in farms, residential properties, and commercial properties. Many small and medium sized businesses tend to park their funds in commercial property investments. They have valid reasons to choose this type of real estate for investment over the others aside from high profit. Moreover, there are several types of commercial properties to choose right from retail shops, malls to offices, hotels, etc. It is possible to invest in this along with others as well, making it an attractive option for smaller investors.
Following are the reasons why investing in commercial real estate makes more sense over other forms of real estate investments.
- Rents on commercial property are higher, and though it can be argued that so are taxes, the difference in the ratio still tilts the balance in favor of commercial properties.
- Maintenance is not a significant problem because the premises is given on rent or lease as a skeletal structure. It is the tenant who plans and maintains the interiors.
- The relationship between tenants and landlords are, usually, professional. In the case of residential properties, tenants and landlords tend to become more of friends, and that can bring in an element of hesitation in asking for rent. Alternately, relationships can be so severe that every second-day tenant may be threatening with some legal action in respect of some maintenance work. This is something that is unlikely to happen when premises are leased to any commercial establishments.
- When the assets are sold, there is a tendency to attach sentimental value in case of residential properties, apart from considering each significant repair work or addition to the property. There is no such sentiment attached to commercial property. Therefore, the property gets its value as per the returns it can fetch both in terms of rent, as well as in terms of capital appreciation.
- In some commercial property rent deals, the tenant takes charge of even property taxes, effectively letting the investor enjoy the property without any botherations.
- Tenants in residential properties are likely to call their landlords at unearthly hours. That is not likely with tenants of commercial property.
Other benefits are similar to an investment in residential real estate investment, i.e.,
- rents increase periodically
- it is possible to avail mortgage loans for buying such property or for any financial necessities;
- there is substantial capital appreciation over a period
But such investment also needs to be evaluated properly because of its limited usage. A commercial investment deal should invariably be accompanied with a plan from exiting it, before it is too late. In addition, the buyer needs to be more cautious about required minimum infrastructure such as water, electricity and sewerage lines apart from no leakages from walls and roofs and firm & long lasting flooring. Car parking adequacy is another factor that should be satisfactory in the deal because generally there are likely to be more vehicle than one used in any commercial premises.