The Pros and Cons of Investing in Commercial Property
The people at EXIT Real Estate Consultants tell us that investing in commercial property is becoming more popular these days. Moreover, they say there are many good reasons for doing so. Businesses in particular are looking for ways to make their money work for them and see commercial property as a solid investment.
With so many types of commercial property to choose from, the options are endless. Whether you are an individual or a business owner, you can either directly or indirectly invest in various commercial premises. Below are some of the advantages and disadvantages of doing so.
The Benefits of Investing in Commercial Property
The return on investment for commercial property tends to be much higher than it is for residential properties. The opportunity for high returns makes commercial property investment a sensible move for most.
The norm for business clients is that they sign much longer leases when compared to residential tenants. This means that commercial property owners don’t need to worry about the building being empty or rents not being paid. Furthermore, with commercial leases, tenants are typically responsible for the maintenance of the build, so the owner doesn’t have to worry about taking care of repairs. This makes investing in commercial property much less hands-on than residential property, where the landlord is responsible for maintenance and repairs.
What are the Disadvantages of Investing in Commercial Property?
The biggest downside to commercial property investment is the initial cost. It is usually much more expensive to purchase a business property than it is for a residential property, making it beyond the reach of many smaller investors.
Investors need to also consider the fact that after the initial purchase, the cost of refurbishment must also be paid for, which can also be costly. However, once this has been paid for, the rental yields can be very high.
Commercial property leases are much more complicated than those for residential tenants. As such, investors will need to hire a lawyer to ensure everything is in order and that their rights are protected.
While leases are long for commercial tenants, when these properties become vacant, it can be some time before they are filled again. This leaves property owners facing the prospect of covering mortgage payments or losing that revenue stream.
Is Commercial Property Investment a Good Idea?
Whether or not investing in commercial property is a good idea depends on a number of factors. For example, if you are an individual or business owner with spare cash, this can be a terrific way to make your money work for you.
The location and type of property will also determine if it is worth the risk. Properties in sought-after locations that can accommodate a variety of business types, such as office blocks in a busy city center, are always going to be a better investment than a hair salon in a back street in a small town, for example.
There are many good reasons to invest in commercial property. The high rental yields are just one. Those who want a good return on their investment will like the fact that commercial leases are much longer than residential leases, giving them greater security in terms of rental income. Furthermore, because maintenance of the property is usually the responsibility of the tenant, the investor can have a much more hands-off approach.
However, commercial property investment does not come without its downsides. There are those who find the cost of initial investment very high. There is also the fact that they need to refurbish the interior to attract tenants. Additionally, the time between tenants can be longer unless the property is in a desirable location.