Investment in real estate, especially residential properties, is quite popular amongst the investors. However, the benefits and opportunities available for investments in commercial spaces could be more momentous than residential properties. Investing in commercial spaces is not the same as investing in residential property. A potential buyer in commercial real estate segment always prefers these things to get the best deals.
An investor targets a rental return of at least seven to eight percent on commercial property which is not very easy to leverage on the investment in a commercial property.
The only leverage that is available is loan against property which is more expensive than a home loan whereas residential property only gives the rental return of two to four percent.
While buying a commercial space its is important for an investor to prefer a commercial space which is already leased as unleashed commercial space will not provide any returns and moreover it would rather cash drain as investors have to pay maintenance and other property taxes As investors are in the business of money making and commercial property can definitely have some advantages over residential one.
• If you decide to go for commercial real estate, you will not face high competition, higher product value, cost & lack of experience/knowledge use to keep investors away from commercial real estate.
• Commercial real estate investing in one of the most researched, well planned and a very significant way to build financial wealth.
• In comparison of residential property, commercial property gives longer lease and can help with the stability of your cash flow.
• It is easier to remove non-paying tenants in commercial real estate because of the longer lease with so many terms & conditions included initially.
• In commercial property there is much potential of greater cash flow and less level of risk. if you have multiple units, you have more tenants paying rent, so if you lose one, you still collect rent from other left tenants
There are following types of commercial real estate in which you can invest for better return on investment.
1. Industrial Commercial real estate includes warehouse and a basic cyclical manufacturing industry with suitable height and other required specifications. the lease length of such property range from 5-10 years.
2. Retail is another very common type of commercial real estate property, located in urban areas, strip malls, community retail centers, banks & restaurants. The size of these properties is usually between 5000 – 350,000 sq ft.
3. Multifamily is typical tenant of multifamily apartment buildings in individuals or families. Lease for this type of property is shorter than other commercial real estate .they include high rise condos, apartment complexes and smaller multifamily units.
4. Office buildings are one of the common types of commercial real estate which includes cubicles, the single tenant, skyscrapers and more. Building is defined by three categories that includes class A, class B & class C.
Class A typically includes the newly build or widely renovated buildings which are on prime locations in close to essential amenities.
Class B includes order buildings that may require the investor to spend some money on this type of investment , it needs some few minor repairs and upgrades to make it fit for investor.
Class C are the properties used for redevelopment opportunities, these are not in prime and require capital investments to renovate the infrastructure.
5. Special Purpose property is for specific use & cannot serve another purpose,
it includes car wash facilities, self storage, amusement parks, stadiums,
airports, leisure & tourism, and school.