Investing in a piece of real estate can be one of the greatest highlights of your life. Among the different types of properties available, owning commercial property can provide a number of financial advantages. In the same, there may also be more risks compared to owning a rental apartment or student housing development. Before you decide what type of property you should invest in, it’s wise to understand the pros and cons.
From retail businesses to restaurant establishments, the type of investment property you choose is a great way to jumpstart your portfolio. Depending on your location, owning a commercial property is a great way to get involved in your community. If you’re wondering you should buy a commercial real estate property, start by considering all of the factors.
Types of Commercial Real Estate
The first step of owning a successful commercial property is learning about the different types of properties on the market.
- Office Spaces – Normally found in downtown cities as skyscrapers or in the suburbs as multi-tenanted buildings. Office spaces can house a range of different businesses.
- Retail Properties – Includes both restaurants and retail stores, retail properties could be big box stores or apart of a shopping center.
- Industrial Buildings – Usually found along major highways, industrial buildings might have multiple areas for warehouse, manufacturing, assembling, or administrative use.
- Multifamily Properties – Describes any residential property that isn’t a typical single-family home. Multifamily properties might include apartments, condos, or townhomes.
- Hotels or Resorts – Type of commercial properties that provide accommodations or meals to travelers for extended periods of time.
Reasons to Invest in Commercial Real Estate
When making an investment decision, there are certain nuances to consider. Compared to residential however, there are a number of reasons commercial real estate is more appealing, such as:
- Greater income. Commercial properties have a higher annual return than single-family homes. Since commercial value is based on the property type, you have a better chance of making a profit.
- Better tenants. Compared to residential real estate, your tenants are other business owners, who will want to keep interactions professional and respectful.
- Fair purchase prices. The price of commercial properties doesn’t fluctuate based on the previous owner’s opinion. Instead, listings are entirely based on the surrounding area’s cap rate for that particular property type.
Drawbacks of Buying Commercial Real Estate
While there are a number of advantages to owning a commercial property, there are risks to consider as well, such as:
- Time commitment. Investing in a property like a hotel or a highrise office building isn’t like an ordinary business. There might be certain situations that require around-the-clock care, especially in emergencies or maintenance issues.
- Finding employees. A leader in any industry is only as strong as the team that’s involved in standard operating procedures. You can’t be everywhere at once, so it’s crucial that you hire employees you can count on.
- Larger investment amount. Compared to residential properties, any commercial properties are large and require services at a higher capacity. With that being said, investing in commercial property will undoubtedly require more money at the closing table.
Pro Tip: Hire a dedicated property manager to help run the daily operations of your property. Both your tenants and your to-do list will thank you.
Choosing Your Investment Opportunity
Once you’re able to weigh the pros and cons, investing in a commercial property is ultimately up to your situation. Depending on the type of property you’re leaning towards, your new commercial property could be attained sooner than you think.