Are you considering investing in commercial real estate but not sure where to start? Look no further! Investing in commercial properties has been a proven path to wealth creation, but it's crucial to do your research to ensure you're making the best investment decision.
In this guide brought to you by David Ghavitian, we'll dive into the pros and cons of investing in commercial real estate, as well as tips to help you make the most of your investment.
Pros of Investing in Commercial Real Estate Properties:
1. Stable and Higher ROI: The potential for high returns on investment is the biggest advantage of investing in commercial real estate. Commercial properties tend to offer a higher annual rate of return compared to other investment options, and with the right location and condition, the ROI could be even higher. Plus, the income generated from commercial properties is generally consistent and reliable.
2. Professional Relationships: Owning a commercial property allows you to establish professional relationships with tenants. These B2B interactions can help keep the relationship with tenants courteous and professional.
3. Property Appreciation: Commercial properties located in prime locations often see a significant increase in value over time. New developments and growing businesses in the area can also boost the value of your property.
4. Accurate Cost Evaluation: As an investor, you can request the current owner's income statement to help determine the property's worth. If the property is being sold through a real estate agent, the asking price should reflect the current market value and provide the potential for a significant profit.
5. Reduced Furnishing Expenses: Offering raw and unfurnished units to tenants is a great way to save on furnishing costs, which can be expensive for residential properties.
Cons of Investing in Commercial Real Estate:
1. Heavy Investment: Purchasing a commercial property requires a substantial upfront investment and ongoing expenses for maintenance and repairs. With more tenants, you'll also have to maintain all the services and facilities, which can get costly.
2. Value Can Drop Notably: The value of a commercial property is closely tied to the lease on the property. If the lease is about to expire or the property becomes vacant, the value may drop.
3. Expensive Loans: Loans for commercial properties tend to be higher in terms of interest rates, terms, and conditions compared to residential properties. Securing a loan can also be more challenging and take longer to process.
4. Higher Risks: Regular investments in maintenance and upgrades are necessary to keep commercial properties in good condition. Failure to make repairs and updates can result in property damage, liability issues, and higher insurance costs, affecting your bottom line.
5. Finding Tenants Can Be Challenging: With a larger area and higher rental rates, finding the right tenants for commercial properties can be more difficult. Properties can remain vacant even after a tenant leaves, which is why it's important to have some cash reserves on hand.
