The Pros and Cons of Investing in Commercial Real Estate

Posted on Jun 30 2016 - 10:57am by Lilies and Daisies

Commercial Real Estate InvestmentIntroduction

Commercial properties are basically the buildings that are leased out for business purposes. Some of these properties include strip malls, office spaces, shops, and restaurants. Unlike residential real estate, commercial real estate has some of the flashiest investors in the world.

Consider these pros and cons before investing in commercial real estate:

The Pros

 

  • Hire Rental Income

Investing in commercial real estate properties generally has higher rental income than in residential properties. This is because commercial buildings are strategically located and have enhanced services and amenities. Moreover, business tenants are obviously capable of paying more and on time.

  • Property Value Increase

Business tenants always put a considerable amount of effort in maintaining their storefront. If they fail to do this, then their business can be affected. For this reason, property owners and business tenants have aligned interests to enhance and maintain the quality and value of their properties.

  • Longer Lease Terms

Many businesses will rarely relocate; they are usually established at one place for a long period of time. As a commercial real estate investor, you can considerably benefit from this by offering longer lease terms to your tenants. This is a steady source of income.

The Cons

 

  • Unfavorable economic conditions

Commercial properties are very sensitive to economic conditions. In case there is an economic recession or a downturn, the demand for commercial buildings usually goes down. The economy is unpredictable; therefore, investing in commercial real estate may be a risky venture.

  • Changes in the infrastructure

More and more commercial buildings are put up each day and a significant amount of modern infrastructure is accompanying these buildings. The modern infrastructure can lure tenants away from your older commercial premises.

  • Huge initial investment
READ  Want to Invest In Property? Here Are Important Tips You Must Know

Acquiring a commercial property will require you more capital than acquiring a residential property in the same in area. Hence, it will be really difficult to get your foot in the door.

As a potential real estate investor, deciding on whether or not you should invest in commercial real estate typically depends on your portfolio. Seek the services of a professional and experienced property investment firm before making such a decision.