As an investor, one is sometimes confused by the plethora of choices available in the market. Even within one sector viz. real estate, one is confused whether to invest in for plot, residential or commercial real estate. Traditionally, investors go in for residential real estate (more so as they are also living there) and sometimes plot/ land. Typically, anyone looking to invest in another property would already own their present home and hence buying an investment with similar physical and commercial characteristics is just so much easier to deal with. It is a fact that buying an office space or a retail store would not even cross the minds of most such investors.
There are some savvy investors who also explore investing in commercial real estate, mainly for the following reasons:
- Good returns: one of the biggest benefit of investing in commercial real estate is that it leads to a regular income stream, significantly higher than residential real estate. Besides, commercial property leases have traditionally contained clauses dictating that rent reviews are “upward only” meaning it cannot be lesser after review.
- High appreciation: As most of the commercial real estate properties are in prime locations and the supply is limited (vis. a vis. residential which can be situated in faraway locations), the degree of appreciation is high.
- Easy to maintain: Unlike a residential real estate, where there are multiple things to look at, commercial real estate is easier to maintain and lease out. Also, the responsibilities for repairs and maintenance are different. Unlike residential properties, in commercial properties, tenants are typically responsible for the costs of maintenance and repairs. Also since the lease length is higher in commercial property, it requires less time and investment from the lessor.
- Accumulate Equity: Commercial real estate helps you to place debt on the asset which is several times the original equity. This means that you can buy more assets with less capital and thus increase your equity manifold as the loans get paid.
- Combats Inflation: When inflation occurs, the real estate price also rises- particularly multi-tenant assets which have a high ratio of labour and replacement costs. Thus, commercial real estate investments has the highest correlation to inflation when compared to other investments.
- Combat Economic cycles: Real estate is a cyclical business. Often, residential and commercial real estate cycles operate differently. If you have a significant investment in your existing home (residential), it may be wise to make your next investment in a commercial property that could move according to a somewhat different market cycle. It is always a good idea to diversify!
- Less Competition: Residential properties attract not only investors but homeowners as well and the growing trends in real estate investment tend to focus on the best ways to buy, sell and flip residential homes. For this reason, commercial properties are often overlooked, despite the unlimited potential that any location may have.
- Greater Choices of Investment Locations: Since leases on commercial properties tend to be longer than on residential ones, it doesn’t matter so much where you invest. This enables you to consider opportunities in Asia, Europe, America, Middle East or wherever else you would like to.
- Entrepreneurship dream: Most of the employed professionals harbor an entrepreneurship dream. While the actual decision to make a business plan, quit and start your own thing may take a while, if you invest in a commercial space while you are earning a fixed package, it helps you save some necessary liquidity when you actually materialize the dream.
- Ownership Pride: There is great joy to know that you own a property which produces income and drives the economic engine of many households and also consequently, the nation at large.
In-case you have any queries related to buying commercial space, please feel to leave a comment here and we will get back to you. Alternately, you can also mail us your queries at firstname.lastname@example.org and we will be happy to help!