Why All The Interest In Commercial Property Rather Than Residential?
The one thing that they have in common is that they are both designed to produce income. As long as you’re in a city in which a piece of land can be bought and sold to a real estate developer for a profit, either would be a good investment. Obviously, the one thing that the small investor must look at is the initial cost. You’ll be investing much more into commercial property but you’ll also get a much higher return. It’s not unusual for office space to give a return of 10% + whereas residential property is about half that amount.
There are many ways to invest but one of the most proven ways has been in commercial real estate. It dates back to the founding of the United States. John Astor became America’s first millionaire through this same type of investment in the 1800’s and the concept remains the same today. Approximately 50% of our billionaires currently own commercial real estate.
One of the reasons so much wealth is acquired in this manner is that capital appreciation is a bigger part of real estate value even than cash flow. It tends to increase in value over time, as rents increase with inflation. With patience it will withstand any recession. The banks and the stock market will lose during the recession.
Commercial real estate gives more security than residential because it’s more spread out with multiple tenants and they have their own businesses to protect as well. Leases on commercial real estate are usually longer than on residential. There’s a lot of diversity in this type of business. It can be an office building, parking lot, land to sell to other investors, or anything in which business is conducted. Banks are usually more comfortable with commercial real estate loans, which is also a plus. Generally you put only a portion down and pay the rest in a mortgage. The mortgage is paid from rents collected.
Of course, nothing comes without risk or hard work but there are answers to these difficulties. If you purchase a building, a reputable managing company must be hired to take care of keeping same building in good repair and vetting new tenants as needed. It’s important to find a good location. That office location should be visible on a main street, near homes, keeping driving time down for tenants, and in a safe area. Investors need to check out the size of the office spaces. There have been some companies wanting shared office spaces and that’s something you might consider in your leases.
Because there’s been a mass closing of brick-and-mortar retail locations, many retailers are scrambling to find other offices or businesses to move into in order to stay alive or risk bankruptcy. Many have decided to become the fulfillment centers for quick delivery of goods to their customers who have ordered online. Like it or not, online shopping is here to stay. However this does offer opportunity to another type of investor who can give the space to these customers.
Healthy living is also an interest for this generation so offices are opening with that in mind … selling natural goods, yoga studios, offices keeping track of all their gym scheduling, etc. The uses for commercial properties are endless and the income is as well. With some research and tenacity, commercial real estate can be a way to make quite a profit!