Should You Invest In Commercial Real Estate?
The most common form of investment when people think about real estate is residential. This is by far the best option for many first-time investors. It requires a great deal less understanding of the typical legal jargon and rules behind it all, not to mention that it’s pretty easy to find new tenants. Residential tenancies are generally fairly short, rarely more than a few years, so there are almost always new tenants popping up looking for a property. But if you wanted to take your career in real estate to the next level then you might want to start looking into commercial properties. Commercial real estate can be a fantastic way to expand and improve on your growing property empire. Of course, that doesn’t mean that it’s right for everyone and it certainly comes with its fair share of challenges. With that in mind, here are some important things to consider when deciding if investing in commercial property is the right move for you.
There are different types of leases
Unlike residential properties, there are plenty of different options for you regarding what kind of lease you want to rent your property out with. All of them have their benefits and drawbacks, but the most common are a gross lease and net lease. A gross lease means that the rent is all inclusive and will help you to cover all necessary expenses on the property. Whereas a net lease will often have a lower rate of rent but the responsibility for the expenses on the property fall with the tenant rather than the landlord. The decision over which one to choose will come down your needs as a landlord, but there are plenty of sites out there that can help you to understand which type of lease is best for you.
It can be pretty volatile
One great thing about residential real estate is that it’s pretty reliable. No matter what the market is doing, there will almost always be people who are looking to rent homes. On the other hand, commercial real estate almost always functions based on what the market is doing at any given moment. Your tenant’s ability to pay the rent and expenses on a property is going to be completely dependent on the success of their business. This means that if you don’t choose your tenants wisely, you could end up in a position where they can’t keep up their payments, and could even cause them to have to leave the property altogether. And any worthwhile investor will tell you, there’s nothing worse than an empty property.
The previous point does have a flipside however which is that, if your tenants can reliably pay the rent, a commercial tenancy often runs for a term that is a whole lot longer than it would be for a residential property. The chances of your property being empty more frequently are definitely higher with residential properties, but commercial property does come with the risk of the property being empty for longer periods of time. It’s simply a matter of taking care and balancing risk vs. reward.
Protecting your properties
The kind of protection that you need as a commercial property owner is often a lot more significant than that of someone investing in property for private tenants. This is because the sheer amount of traffic that commercial properties get means that they will likely need a lot more maintenance. Of course, that’s not the only protection that you need for your properties. You also need to think about things like protection against natural disasters. Connecting with a qualified earthquake building design consultant can help to make sure that any property that you invest in is fully protected against earthquakes and natural disasters. It might seem like something that’s not all that likely to happen, but it’s the kind of protection that you will most certainly wish you had in the event that something does happen.
The reality is that investing in commercial properties often involves a whole lot more work and is far more complex than investing in many other kinds of properties. You have to be willing to ask yourself if this is something that you’re actually ready to deal with. This is not the kind of investment that you can take a hands off approach to. You need to be involved and, for many people, it can end up being closer to a full time job than anything else. You need to be sure that it’s something that you can handle before you make any solid commitments.