Property investment is a venture many people seek to get into at some point in their lives. This is mainly because the benefits it provides more often than not seem highly lucrative to prospective investors. Investing in commercial property is often viewed as a simple way to gain returns.
What is commercial property?
Commercial property includes structures such as retail buildings, office buildings, apartment buildings, industrial buildings and warehouses.
What are the pros of investing in commercial property?
Income potential: There is greater earning potential and more financial rewards compared to residential property investment.
Limited hours of operation: When the business is closed at night, you can rest. You’ll most likely only need to be ready for emergencies such as break-ins or fire alarms.
Attractive lending rates: Commercial real estate can provide impressive returns and considerable monthly cash flow. Property owners may also benefit from longer lease contracts with its tenants compared to residential real estate.
Maintaining a good public image: Commercial property tenants will usually have a vested interest in appealing to the public, so it’s likely that they will keep the premises looking clean. This may also indirectly raise the property value of your building at no extra cost to you.
Simpler price evaluation: Commercial properties can be evaluated more accurately. Income statements from rental income can provide valuable insight for interested buyers.
The quality of the tenant may be beneficial: If you get a tenant such as a large corporation or government, this is considered beneficial because this tenant is unlikely to default on payments.
Build wealth: Investing in commercial property enables you to build wealth by growing equity over time while receiving income.
What are the cons?
You’ll need professional help: Handling maintenance issues will require professional services. This means you will have to pay extra costs.
Increased risk: Commercial property has more visitors so there is an increased chance that people can get hurt or do something to damage the property.
Bigger investment: A bigger initial investment is usually required. It doesn’t end with the investment. You’ll have to pay some more money towards repairs and maintenance.
Tied up capital: If you are looking to sell the commercial property, it could take a while. It is not easy to sell quickly.
Economic downturn effects: When the economy takes a turn for the worst, businesses suffer. Your tenants may struggle to pay rent, thus affecting your income.
Extensive litigation: You’ll need to do some extensive research before buying commercial property.
Tax implications: Income from the property is taxable and can be considerably high.