Both residential and commercial properties can be great investment opportunities, but commercial properties like retail centers, offices, warehouses and apartment buildings often provide higher returns over time.
Top real estate developers deal almost exclusively in commercial property, but is it right for you? Here we’ll explore the advantages and disadvantages of commercial property investment:
Advantages
Commercial real estate properties usually have a much higher annual return off the purchase price than single family home properties. Over time, you can make a lot more off renting out a building than renting out an apartment, which is why many top real estate developers don’t waste time with residential properties.
You can also keep things professional with your tenants. Relationships between individual landlords and tenants can get unpleasant fast, but relationships between small business owners and real estate investing companies have to maintain a certain level of civility. Business owners will also share some of the responsibility of keeping a building presentable, since its appearance reflects on their business as well.
You’ll also have less to deal with overnight. Apartment tenants can call at all hours, but businesses usually turn in for the night. Aside from emergency situations where alarms are triggered, you’ll usually be able to sleep through the night with ease.
Prices are usually evaluated in more objective terms for commercial properties, so it’s easier to purchase and sell. You’ll also have more flexibility on the lease terms, since there are fewer laws that govern commercial property leases than residential ones.
Disadvantages
Owning commercial real estate is a major time commitment, even if you only have a few tenants. Unlike residential properties, you have to be around to deal with multiple leases, maintenance issues and public safety concerns. The whole time, you’re in the public eye.
You’ll also have to pay for professional help a lot more often, since commercial property repairs should usually be performed by a licensed contractor.
Since the initial investment for commercial properties is much higher than residential properties, there’s also a much higher financial risk. Top real estate developers stand to lose much less than the average individual, which is why they often take the chance.
However, if you run a savvy business and choose your tenants well, the payout could be more than worth dealing with potential negatives.
