Real estate is often termed as the safest investment avenue. In fact, real estate investments done with proper evaluation of the property (and its true value), can lead to good profits. This is one reason why some people pursue real estate investment as their full time job. The talks of real estate are generally focussed towards residential real estate; commercial real estate seems to take a back seat. However, commercial real estate too is a good option for investing in real estate.
Commercial property includes a lot of different kinds of properties. Most people relate commercial real estate with only office complexes or factories/ industrial units. However, that is not all of commercial real estate. There is more to commercial real estate. Healthcare centres, hotels, malls, retail structures and warehouse are all good examples of commercial real estate.
So, is commercial real estate really profitable?
The only thing with commercial real estate is that recognising the opportunity is a bit difficult as compared to residential real estate. But commercial real estate profits can be real big (in fact, much bigger than you would expect from residential real estate of the same proportion). You could take up commercial real estate for either reselling after appreciation or for renting out to, say, retailers.
Commercial real estate development is in fact treated as the first sign for growth of residential real estate. Once you know of the possibility of significant commercial growth in the region (either due to tax breaks or whatever), you should start evaluating the potential for appreciation in the prices of commercial real estate and then go for it quickly (as soon as you find a good deal). And you must really work towards getting a good deal. If you find that commercial real estate, e.g. land, is available in big chunks which are too expensive for you to buy, you could look at forming a small investor group (with your friends) and buy it together (and split the profits later). In some cases e.g. when a retail boom is expected in a region, you might find it profitable to buy a property that you can convert into a warehouse for the purpose of renting to small businesses.
Let’s explore some reasons why more and more property investors are choosing commercial property over residential property:
- Better tenants. For commercial property, tenants are usually businesses with their own maintenance team, hence there will be less headache for landlord. Whereas for residential property, tenant will sometimes called you up during some odd hour just because they are unable to get into their house or having discovered a leak or other problem.
- Higher rental yields. In general, yields tend to be higher for commercial property as compared to residential property.
- Longer lease contract, less hassle. Landlords normally has a more reliable source of income as for commercial tenants, they will often sign on for longer leases – some may even be happy to stay there indefinitely since it would cause them a lot of hassle to change their physical location after all the renovations etc.
- Increase in asset value. In general, commercial properties tend to go up in value for a variety of different reasons, for example, new developments in the location bringing in more customers for any business in the property etc. Commercial landlords tends to have high capital appreciation in future if they sell off the property besides getting the profit from lettings the property all these while.
What to expect?
Remember though! This type of real estate investment is a long term opportunity, do not expect to increase your net worth over night. No one is going to profit all the time. Real estate investors have to suffer through times of little to no cash flow – it is part of the game.
See also: Real Estate Investment Trust. An alternative to owning a property.
This may cause panic but if you can stick with it for the long term, cash flow will increase. Investing especially in real estate is not for the weak of mind or body. It can be frustrating, and stressful. But for successful investors the rewards are priceless.
Commercial real estate presents a whole plethora of investing opportunities, you just need to grab it.
