Prize Property – 6 Unique Benefits of Investing in Commercial Real Estate
Mention the word investing, and most people’s minds automatically turn to stocks. While there’s certainly money to be made playing the stock market, this type of investing is very risky and not for the faint of heart.
Another investment avenue that’s become very popular of late is real estate investing. Many real estate investors prefer buying residential properties, but commercial real estate is where the big money is. Here are several unique benefits of investing in commercial real estate:
1. High Income Potential
The number one reason to consider commercial property investment is its high-income potential. The average return on investment (ROI) for a commercial property is between 6 and 12% annually, whereas a residential single-family property yields just 1 to 4% percent per year.
Expanding on this point, commercial properties usually garner longer lease periods than the average residential lease. Ranging in length from 3 to 10 years, a commercial property lease generates a reliable income for a much longer time than the typical 6-month or 1-year lease of residential real estate.
2. Professional Tenant/Landlord Relationship
Because landlords of commercial properties tend to be LLCs rather than individuals, there’s more of a business to business relationship between the tenant and the owner. The small business owner who leases the space takes pride in their livelihood, and thus understands the value of the property for themselves as well as for the owner.
3. Limited Hours of Operation
Most commercial properties are closed part of each day, which means that your hours of operation are limited to their opening hours. Barring any emergencies like a fire or break-in, you should be able to sleep soundly at night, unlike residential property owners who must attend to things like locked-out tenants and emergency repairs at all hours of the day and night.
4. Lease Terms with More Flexibility
When you invest in commercial property, you have more leeway in making lease terms than you would if you owned residential property. With residential property, there are multiple state laws concerning security deposits, evictions, and more that dictate most of your lease terms.
5. Forced Appreciation
Unlike residential properties whose value is largely based upon the going rate of other real estate in the area, commercial properties’ values vary according to the amount of revenue they create. This means if a specific property generates significant cash flow, its value will likely be higher.
A savvy commercial property owner can force the appreciation of a property by doing things like leasing to high-quality tenants, raising the monthly rent, ensuring the property is being used in the best way possible and adding amenities to increase revenue.
6. Less Competition
Investing in commercial properties like shopping malls and office buildings is a huge undertaking. It isn’t something just any investor should attempt, which is why many choose to invest in residential properties instead. For investors experienced or savvy enough, there’s less competition in commercial property investment.
Furthermore, even though it requires a substantial monetary investment upfront, banks are more willing to extend mortgages for high-performing commercial properties over residential ones.
There are many ways to invest your money to increase your wealth. From playing the stock market – which is very risky – to investing in the various types of real estate, one of the least risky and most rewarding ways to make money investing is with commercial real estate. With such benefits as steady returns, less competition and high-quality tenants, commercial property investment is a great way to generate a steady income and save for retirement.