Pros and Cons of Investing in Commercial Real Estate

Jan 21, 2022

Investing in real estate is always in trend due to great income potential. You can choose to invest in commercial real estate or residential real estate, for example. Investing in commercial real estate has a lot of pros, but it is important to know the cons as well. This is why we have created this useful guide on the pros and cons of investing in commercial real estate. You must make an informed decision that is in your best interest before you decide to purchase commercial real estate.

Income potential

Investing in commercial real estate is fantastic because of the total income potential. Unlike its counterpart, residential real estate where the annual return of the purchase price ranges from 1% to 4%, the income potential for commercial real estate is significantly higher. Namely, research shows that the annual return for commercial real estate is between 6% and 12%. If you are in doubt whether you should invest in commercial real estate, this might help you decide.

Public eye

Renting your commercial real estate means that business owners will have to pay attention to how the property looks. It is important that the real estate is always clean, lit up, well taken care of, and maintained. Customers prefer to visit such places, and this means that your property will be well maintained. While it is in the public eye, the business owners or those who rented the property will always strive to make it look perfect. Regular maintenance and constant improvements on the property can raise the value of the property as well.

Professional relations

Renting out a residential property to tenants is different than renting out commercial property. Namely, you will be renting not to individuals, but business owners, LLCs. This implies that in most cases you will be able to have a professional relationship with them. Especially if you are renting to owners of small businesses, as they strive to appear as professional as possible. This has plenty of benefits, as you will be able to resolve any issues in a calm, professional manner.

Two Businessmen Shake Hands

Fewer emergency calls

When you have tenants in residential real estate, you can receive an emergency phone call at any time of the day or night. One of the pros of investing in commercial real estate is that business is often closed after 5 pm. If there is an issue that should be fixed, they will reach you during their working hours. Of course, if you are renting several apartments to tenants this does not apply here but is one of the benefits of renting to business owners.

Triple net leases

A triple net lease means that the company that occupies your commercial real estate will pay taxes and maintenance for it. This implies that you will have no other expenditures except for a mortgage if you have it. Beware that this is not the case with every commercial real estate lease, but in some cases, you will be able to sign this type of lease.

Plenty of options

What is commercial real estate anyway? A commercial real estate can be a factory, warehouse, a building with plenty of apartments to rent, offices, storefronts, etc. Unlike residential real estate, you have plenty of options to choose from. These properties can significantly pay off and you will be able to enjoy the income made from them.

Longer leases

When renting commercial real estate, chances are you will sign longer leases. And by this, we mean even five to ten years of the safe lease. You can forget about interviewing and finding new, reliable tenants every few months, as businesses tend to stay for longer periods.

Commercial real estate is more expensive than residential real estate

Without a doubt, there are lots of pros for investing in commercial real estate. However, it is important to be aware of the risks and cons of investing in this type of real estate. This is the only way to make the best decision that is in your interest.

One of the first cons is that commercial real estate is more expensive than residential one. To buy commercial real estate you will also have to provide a high down payment, even if you take out a loan. While it is far from impossible to buy this type of real estate, you need to start saving money on time.

You will need to hire professionals

When you are renting a residential property, you can fix some of the issues yourself if you know how to. But when it comes to businesses, you need to hire a reliable professional to handle all maintenance issues. This can come out as an expensive endeavor, so you should calculate whether investing in commercial real estate is in your best interest. On the other hand, it is extremely valuable to hire a real estate management company that will help you rent out your property in a safe manner.

Professionals Work On A Laptop

You need to do a lot of research

When investing in commercial real estate, you must become familiar with local laws and regulations. The property that you want to buy must have all the necessary documents, and it is wise to have a lawyer check everything before you sign any paperwork. You need to do thorough research when investing in any type of real estate, however, it should be noted that commercial real estate demands a lot of thorough research.

We have seen the pros and cons of investing in commercial real estate. You will have plenty of options to choose from for your investment, and the income potential is high. For you to get the best results, it is wise to consult with a commercial real estate company, always have everything checked up by a lawyer, and have patience for any possible issues. Good luck!