May 19, 2024

Pros and Cons of Investing in Commercial Real Estate

Investing in property, whether it’s commercial or residential, can be a great move. It may be that one opportunity you were waiting. Commercial properties are more often financially rewarding for such an investment, but you have to understand that this process has its risks.

If you’re looking for the best ROI, you have to understand the pros and cons of investing in commercial properties. That’s why we’ve come up with this short guide which should help you understand everything you need about investing in real estate. We will be talking about commercial properties like retail buildings, office buildings, apartment buildings, industrial objects, warehouses, and combined spaces for “mixed use” (those properties with a combination of, let’s say retail, office, and apartments, for example). So, without further ado, let’s get straight to it.

The Advantages of Investing in Commercial Properties

  • Income – One of the biggest, if not the biggest advantage of investing in the commercial real estate is most definitely the great return rates. If we speak in numbers, single-family property investments have an annual return somewhere around 1 – 4%, while commercial properties usually have an annual ROI somewhere between 6 – 12%. This alone shows why investing in the commercial real estate can be a smart move.
  • Working Hours – When you think about how most of the businesses operate, the first thing that comes to mind is a standard 9-5 working hours. From the investor’s aspect, this basically means you get off the clock at the same time, whereas residential investors have to be available round the clock for their clients and tenants. When you consider that most of the businesses employ a building manager, you can see that there most likely won’t be any late-night emergency calls for a commercial property investor.
  • Mutual Interest – Another amazing advantage of being a commercial property investor is that commercial tenants tend to take great care of the space. Knowing that such tenants have a business to take care of, they can’t risk getting thrown out because of poor maintenance of the property. This mutual interest is definitely one of the biggest advantages of investing in the commercial real estate.

The Disadvantages of Investing in Commercial Properties

  • Greater Liability – Probably one of the biggest risks associated with commercial property investment is the lack of control of the number of people that go through your property. More people mean a higher risk of accidents, crowded parking lots, property damage, and so on. With such risks, the cost of the insurance increases, and in some cases, you need a specific type of insurance. That’s why you need to do your research and make sure you understand everything perfectly before you close the deal.
  • More Competition – When it comes to commercial real estate market, it’s constantly growing. And not just that, it’s growing all over the world. For example, Australia has become one of the biggest and most competitive markets in the world. For example, “Sydney is undergoing major disruption caused by massive infrastructure projects and constantly changing planning controls”, according to property advisors in Sydney It can be quite difficult to find commercial property you like, that hasn’t been taken. Even if you manage to find the best possible commercial real estate for investment, the chances are that there are other investors involved as well.
  • Higher Initial Investment – It can be quite expensive to get a commercial real estate, based on the ROI, so you will need a higher deposit and much more resources to acquire this type of real estate. You will also need to do a thorough walk through the property to ensure you won’t have any high unexpected budget hits (things like AC system, bad roof or plumbing).

Wrapping It Up

Before you start looking for a property to buy, consider these pros and cons. They should help you understand how to look for the best property in the best possible way. Make sure you contact professionals and plan ahead. Devise a budget and follow it closely, and you will soon start getting your investment back.