If you're thinking about making an investment in real estate with the intention of making a healthy profit, you may be thinking along the lines of a residential property. But what about commercial real estate? Commercial real estate may actually offer you greater profitability. Here are some of the pros and cons to consider before you call your real estate agent.
The Pros of Commercial Property Investment
Commercial properties can yield a higher return on your investment compared to residential. In addition to this, they can require less overall input from you. Business owners need to spend time maintaining their premises as their livelihoods depend on it—they are likely to keep their stores and storefronts in good condition. This means that their interests are aligned with yours—your investment is looked after, and the value of your property is not diminished by poor upkeep.
You are dealing with a professional business person and as such, your interactions with your tenant are likely to be courteous and professional. Also, your working hours as a commercial property owner are likely to be favourable--most businesses work standard office hours, so tenants are less likely to contact you out of hours unless there is an emergency such as a break-in.
Break-ins are also less likely these days, as many businesses have alarms. Therefore, if one occurs, the police will usually be alerted before any real damage is done.
The Cons of Commercial Property Investment
Acquiring commercial property generally requires more up-front capital than residential property purchases in the same area. Plus ,the work that may be needed to get a property ready for tenants can be costly. Work on commercial property can be more expensive, as can future repairs and maintenance. Even those with good DIY skills are likely to need to pay professionals when maintaining a commercial property—repairs have to be carried out to meet all safety regulations for a publicly used building.
While many of the above expenses are business related and can be offset against taxes, you will need to have the money available at the start as well as a keeping money available for repairs to be undertaken as they arise. Damage to a commercial property might be a greater possibility than with residential—the property receives more daily visitors and is more likely to be the victim of vandalism such as graffiti.
A property management company can take over all the work included in commercial property management, including lease administration, but this will eat into your yearly profit. However, those worried about the risks involved may find the reduction in worry makes a smaller profit more palatable.