Is Commercial Real Estate Investing Right for You?
Published | Written by Sophia Morales
Being the owner of any real estate property, residential or commercial, can be a great investment opportunity. Becoming a landlord is a great way to have an extra stream of revenue. And in most cases owning commercial real estate will generate more profit in the long term. However, certain things, like the fact that there’s a higher risk when investing in commercial real estate, can scare people off. For some people, even the little things that are technically considered “extra work” are enough to turn them away from commercial real estate investing. For example, just like in residential real estate, as a commercial investor, you’ll have to learn a lot of new terms.
Doing your best to understand why this type of investment would/wouldn’t be for you is a great way to ensure that you’re making the right investment decisions for your situation.
What is commercial real estate?
Before we talk about why you should or shouldn’t be investing, let’s first explain what commercial real estate properties are. Here’s a short list of what kind of property this term usually refers to:
1. retail buildings,
2. office buildings,
4. industrial buildings,
5. apartment buildings.
Of course, there is always variation and nuances. But, these reasons for and against commercial real estate investing refer to all types.
Reasons why you should invest in commercial real estate
The extra income
The first and most common reason people invest in this type of real estate property is the higher income rate. Commercial real estate properties generally bring double the return off the purchase price than residential properties do annually. However, this does depend on many external factors. But, in general, if your goal with investing in rental real estate is to get as much revenue as possible, this investment is definitely for you.
Your relationship with your tenants will be more professional
Unlike residential rental properties, the relationship between the landlord and the tenant in commercial properties is much more professional. Any business owner renting your property would probably approach you with a business-to-business relationship. Suppose the thought of getting to know your tenants and making closer interpersonal relationships with them seems unappealing. In that case, investing in a commercial rental space is the right choice for you.
Your tenants are a lot more motivated to keep the place looking good
Most residential tenants will do their best to properly maintain your property. However, when your tenant is a business, they are more interested in having the place look good. For example, if you’re renting to a small business owner, who has a store in the property you’re renting out, they’ll want to maintain it as well as possible to attract more customers.
In this scenario, you and your tenants have aligned interests. You will get something out of place, looking excellent and well-maintained.
No sudden midnight calls
If you decide to own residential real estate, you can expect at least a few midnights calls over the years. Whether it’s because the tenant needs something fixed or they got locked out of their home and need your key. On the other hand, if you invest in commercial real estate, the business you rent to has set work hours. That means that you work the same hours as they do. Of course, you’re not totally off the hook. If a disastrous event such as a fire breaks out, you will probably have to get out of bed and do something about it. But those are rarer than the all too common “I forgot my keys” call.
More security on your side
If you own residential rental property, your tenants will not be OK with you putting in cameras. However, as the landlord of a business’s rental space, you’ll probably be encouraged to add as many security features as possible. That means the risk of break-ins and other security breaches is much lower when you own commercial property. If you find security very important, then commercial real estate investing is more your speed.
Reasons why commercial real estate investing might not be for you
It can be a lot more work
Simply put, when you own commercial spaces, you have much more to manage, from dealing with annual CAM adjustments to handling multiple leases, maintenance issues, and public safety concerns. A piece of great advice from experts from a2bmovingandstorage.com is to have professional relationships with local moving and storage services. This way, if any of your tenants decide to close up shop. You already know whom to call to make sure they are moved out, and the space is clear for a new renter as soon as possible.
If you want to be a commercial real estate owner, there’s no way for you to be an abstinent landlord. It’s a way more hands-on experience. So if that seems unpleasant, this investment is not suitable for you.
You’ll likely always have to hire help when it comes to maintenance
Because of all the regulations in place for commercial properties and public spaces, unless you’re licensed, you’ll probably have to hire help regarding any maintenance issue. When you own residential real estate, you may get away with fixing a leaking pipe by yourself. But with commercial spaces, this option flies out the window.
You can always outsource property management by employing a property management company. However, you should do all the calculations needed to see whether you would better handle everything by yourself or hand over some of your revenue to a management company.
It’s a much more expensive investment at first
Buying a commercial property is a much larger investment upfront. There is much more money to spend, and getting your foot in the door may be challenging. Your general goal with this is that the profit you make from renting will outweigh the money you need for maintenance and investment. You can always get in touch with an experienced agent to help you figure out what the best course of action would be. Just make sure that you know their story and that they are reputable. They can help you properly account for everything and ensure you won’t lose any money.
As you can see, there’s much to consider when deciding if commercial real estate investing is right for you. However, with enough preparation, calculations, and guts, you might turn quite a profit and get a new great source of revenue. Of course, you should always ensure you have a trusted real estate professional when looking for commercial properties to invest in.