If you were to ask 10 different real estate experts about how good of an investment commercial property is, you would likely get 10 different answers. That is indicative of the fact that commercial rental property investment has its pros and cons.
As an investor, you have to make a decision about how much money and time you have to invest in making your real estate investment work for you. If you are looking at commercial real estate as an investment opportunity, you need to know right upfront it will require both time and money, depending on how you set things up.
To help you in the decision making process, here are a few of the pros and cons associated with commercial rental property investment.Â
Pros Of Property Investment
There is a big difference between investing in residential and commercial property. This difference forms the basis for many of the pros associated with commercial restate ownerships.
Income Stream – While investing in commercial real estate might require a larger capital investment than residential property, the rental returns have the potential of being quite substantial. Also, landlords get the benefit of tenants committed to longer term leases. As MTD Management explains, while houses lease year to year, most commercial buildings or spaces can be locked down for up to five years at a time.
Better Quality of Tenant – A residential renter does not tend to think of the home they are renting as an extension of themselves. It’s just a place to live until another opportunity arises. When a renter leases a building for several years, that space is part of the business. With that in mind, building tenants tend to treat the property with more care.
The Advantage of Triple Net Leases – Anytime you are investing in real estate, you want to keep your cash outlays at a minimum. If you have residential property, you will have expenses related to repairs and maintenance. In a commercial rental situation, you can issue a triple net lease. By doing so, you would put responsibility for maintenance, insurance, and taxes in the lap of the lessor, leaving the mortgage payment as your only financial obligation.
Tax Advantages – Commercial real estate properties can provide tax benefits that you might not get with other investments. Commercial property owners are eligible for depreciation, which can offer substantial tax savings. The best way to ensure you’re taking advantage of all the tax benefits available is to use commercial SMSF property valuations that can help you maximize your tax savings. Commercial properties also allow landlords to write off expenses related to the property, such as insurance, advertising, and legal fees.
Cons Of Property Investment
Capital Requirements – Everything is bigger when investing in commercial real estate. The first thing you would notice when contacting a brokerage site like Avery Rental is the prices of buildings are higher than the prices of a house. While that might mean larger rents, it also means a larger mortgage payment and maintenance costs.Â
Difficulty Renting – Given the need to make a larger investment, you could ill afford to have any part of your building unrented. You could probably survive a month or two without a renter in the house, but the same scenario with a building investment could be catastrophic. Also, buildings/office spaces tend to take more time to rent than homes.
Time Commitment – As a building landlord, you would need to make a choice. You could choose to handle everything yourself, which would likely put demands on your time. Your alternative would be hiring a property management firm, which would put demands on your wallet. Not an easy choice to make.
Using this information as a guideline, you need to decide how to set your limitations as far as time and money. If you can find something that works well and brings in profits, commercial real estate could be the right option for you.
