Making an investment in commercial real estate isn’t as complicated as you’d think.
As a method of generating a lucrative income stream, it is popular with people from all walks of life.
However, if you’re going to get involved in real estate management, you’ll need to think about being patient, thinking each decision through carefully, and doing due diligence where necessary.
Let’s take a look at what you’ll need to know about commercial real estate investing to make it work for you.
The Commercial Property Market
To understand how real estate investing works, it’s necessary to know what the commercial property market is.
Primarily, the commercial property market mainly deals in things like retail, industrial buildings, offices, and warehouses (Here are the different types of Commercial Real Estate).
For anyone making a direct investment into the property, there is the option to either buy it outright or purchase a fund that can hold it within the portfolio.
Other examples of indirect investments include things like housebuilders, property companies, developers, or funding invested into said companies.
Pros and Cons of Commercial Real Estate investment
Investing in commercial real estate has its Pros and Cons.
Understanding the strengths and weaknesses of the concept is key to making smart decisions.
Pros:
- Earning Potential.
The good thing about commercial real estate investment is that it offers higher income potential.
Generally, a commercial property will annually return on the purchase price up to a value of 12%, which is a higher range than single domestic properties, which only generate 4% at best. - Easy Management.
Businesses have limited operating hours. This means that when the workday ends, everyone goes home and your managerial responsibilities end, barring an emergency situation.
This is a welcome relief if you’re not a fan of trying to deal with domestic tenants who want emergency repairs or have lost a key to their home.
Cons:
- More Commitments.
If you happen to own a commercial building that has multiple tenants, you have more responsibility than if you were just managing a single domestic property.
You’ll have to make sure you give each tenant enough time to talk about their issues, and you will need to manage all the leases involved. While this is offset by commercial operating hours to a degree, it’s still a commitment. - Needing Professional Assistance.
You’ll be responsible for all the maintenance issues at the commercial property – regardless of whether or not you personally are qualified to do so.
The problems start to crop up when you realize that you’re not going to be able to fix a lot of the issues yourself without a license.
This means working with a property maintenance company, which can bring in the costs.
Final Thoughts
Commercial real estate investment can be a good way to earn some money and build up an impressive portfolio, but it is important to note that there are costs to keep in mind.
You’ll be responsible for managing the leases and handling the repairs as and when they crop up – this can rack up some major expenses.
However, the benefits do include considerable earning potential and also the ability to operate with limited hours.
Commercial real estate is something you’ll need to research before you start to commit to anything.
You do have a lot of options, and it can be lucrative, but it’s not for people who aren’t ready for it.
You are, after all, providing businesses with their building, which is a big responsibility – you need proper education to make sure that you can provide the right services and deliver a fair lease – otherwise, you may find yourself on the receiving end of legal threats from your tenants!
