Home News Real Estate The Ups and Downs of Investing in Commercial Real Estate

The Ups and Downs of Investing in Commercial Real Estate

Any property, whether it is a commercial property or a residential one, can be a positive investment. For your money, choosing commercial properties can often offer more reward than any residential properties would. However, there can be more money needed in the first place for a commercial investment, compared to renting out an apartment. There is risk to either investment, as it does need to be at the right time, as well as the right location. So if you are thinking about investing in commercial property, then you need to really understand the pros and cons of it all, so that you are fully informed when it comes to making a decision that is going to be right for you all.

What Is Commercial Property?

To start off with, you need to fully understand what is meant by commercial properties. This can refer to the following: 

  • retail buildings
  • office buildings
  • warehouses
  • industrial buildings
  • apartment buildings

Of course, there are some nuances to owning and managing these different types of buildings, and making them into a space that will work. For example, for a retail space, it could take some work to really get it looking good, and ready to be rented out by a store, so that might be something that you need to discover more of online. So what are the ups and downs of commercial buildings?

Positive Reasons to Invest

  • Income potential: overall, the best reason to invest is the earning potential. When you have done your research and planned well, you can get between 6% and 12% of the purchase price as an annual return. Residential properties tend to be up to 4% if you’re lucky. 
  • Professional relationships: small business owners looking to rent these kinds of space will be doing so in a professional manner. They will not want it to be run-down, so will take care of it. It can also help to cultivate a business-to-business contact
  • Public eye: if tenants, for example, in retail, don’t take care of the building, then it can impact their business. This means that commercial tenants and you as the commercial property owner can work to keep it looking as you would like it. 
  • Limited hours of operation: a business will generally close and not work overnight. So put simply, you’re much less likely to have to deal with middle of the night phone calls that the heating has broken or repairs are needed, which can happen with residential properties.  

The Downside of Investing in Commercial Property

  • Time commitment: if you have a property with a number of tenants, it can be a big chunk of time keeping up with them all. You need to be involved as a landlord if you want to get a good return on your investment. 
  • Professional help required: unless you are licensed and experienced to take care of a property yourself, then you will need to pay for professionals for repairs and maintenance. As it is businesses renting from you, they can be liable to employee liability claims if their space isn’t up to scratch, so a DIY job won’t be sufficient.
  • Bigger initial investment: although you will get more returns, it will cost you much more in the first place.

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