Among the several business ideas that ensure a smooth cash flow, commercial real estate is an exceptional one. Investing in commercial real estate sector has become a common trend nowadays. Sometimes the prices in real estate can go very low and at time you can yield a good return on your investment. However, to enter the race of smart business, this certainly is the best time to invest.
A property with good returns is the first aspect to look for in the real state business. Next comes the strategy to strike a good deal. The following tips will help you survive in the commercial real estate business.
Create a plan based on your budget: The value of commercial investment properties is different from the residential properties. Moreover, there is a bigger cash flow with these properties. First you should make a budget plan, based on the amount of money that you can easily spend to buy a property. Find out if the property is on lease, and if it is, find out the rent being paid. Continue reading
A common question among investors is, ‘What are the advantages of commercial real estate investments as compared to other investment options?’
There are several investment platforms available today. The stock market is one of the popular options; however, a number of investors are moving out of that venue because of market volatility and low ROI (return of investment). The platform that offers best opportunities and maximum profit in this volatile economy is a commercial property with high return of investment.
Many who previously believed in investing in the residential real estate market are getting into commercial investment properties, as the current market conditions are creating a good opportunity for making this upward transition.
Investing in commercial real estate is undoubtedly a great idea but before making the final decision, it is very important to know everything about the real estate market, so that you do not make any mistake while investing. Here, we shall discuss about the types of commercial investment properties, the benefits of investing in a commercial property and factors that must be considered before making the final decision.
What are the different types commercial real estate?
When we talk about commercial property, any property that is not residential is categorized under commercial real estate. Properties like office buildings, malls, retail markets, resorts and industrial factories, to name a just a few are some of the commercial estate real estate properties. In simple terms, when you invest money in a property that will be used for commercial purposes, it means you have invested in the commercial real estate. A commercial property is an investment property with returns – this means you can be assured of monetary gains or profits.
Why to invest in the commercial real estate?
Once you invest in a commercial property, you can relax as this is an ultimate key to generate money. Let us have a look, how:
- You can purchase a property and build equity. Keep a watch on the real estate market trends and when you think exiting is a great decision, sell off your property and enjoy the profits. Choosing a commercial property for investment sale is certainly a great choice.
- Secondly, if you want a monthly income, you can rent the property and enjoy the benefits. Your tenants will pay the monthly rental and you can enjoy the profits.
- Thirdly, if you yourself are a businessman, you will not have to pay any monthly rental for an office space. You can successfully run your business from the office space you own and at the same time, you can also build your equity.
- Lastly, if the space you own is more than your personal requirement, you can rent the extra space. By doing so, you can utilize the extra space and also, enjoy the monthly cash flow.
Factors to consider before making the final decision
- Check the location of the property.
- Check the infrastructure of the property and assure that the property is in a good state.
- Estimate the monthly amount that you can expect from the property.
- Calculate the amount that you will have to invest and figure out whether you will be gaining profits or not.
- Consider the future prospects of the property.
When we talk about investments, one of the best choices an individual can make is of investing in commercial real estate. Many people cannot decide whether investing in a residential property is beneficial or they should opt for commercial investment properties. In this blog we shall discuss everything about commercial property and the benefits of investing in a commercial property.
What is a Commercial Property?
To start off with, let us first get an understanding of what a commercial property is. In very simple terms, every other property that does not come under residential property is known as commercial property. These properties include offices, buildings, shopping complexes, hotels and industries, to name but a few. The residential property is for an individual’s personal use while a commercial property is used by more than one person. Whether we talk about commercial property for investment or sale purpose, the choice is always beneficial. However, an investor should always be very careful while investing in the property.
Why Is a Commercial Property a Secure Investment?
Once you decide to invest in a commercial property, you can be assured that you have made a secure investment for yourself.
- One of the biggest advantages of investing in a commercial property is that it is an investment property with returns.
- The money that you spent in buying the property, can be recovered in the form of the monthly rental given by the tenant.
- If the CPI (Consumer Price Index) increases, the commercial lease also increases with it. This means that if there is any increase in your expenses, that amount will be directly added to the monthly rental that is paid by your tenant.
- A huge amount of the operating cost is paid by the tenant through the structure of NNN or NN lease.
- If any changes are made to the property, the tenant bears the expenses.
How to Play Smart While Investing
To make the right choice, it is very important to consider a few factors before making the final decision.
- Always check the infrastructure completely. Do not go only by the outer appearance.
- Estimate the monthly rental that can easily be generated and compare it with the amount you would be spending. Make sure that you are not at a loss by the end of the deal.
- Set up a budget and choose a property within the predetermined budget.
- Make sure that the property is located at an accessible location.
- Study about the area and consider the future prospects of your current investment.
Many of us are well aware of the trends of residential property investments, but when it comes to investing in commercial real estate, most of us are ignorant. People who do not run a business, or have no connections with the commercial property, are generally unacquainted about the commercial property trends. However, it is always a wise choice to stay abreast of all the investment trends taking place in the real estate, because you never know when you might need to invest in a property. Let us gain a little knowledge about commercial investment properties and the benefits that come along with them.
- Risks and Returns: When we talk about commercial property investing, it should always be noted that it there is always a higher risk involved in it and at the same time, it is a property with high return. The commercial real estate market varies from place to place, but when compared to the residential property, there is a huge difference between the two. A commercial space might take several days to be leased out. Thus, the risk involvement is high in a commercial property.
- Period of Lease: When a commercial property is leased, it is generally done for a long period of time. The period might be as long as about ten years. Also, various commercial properties can be leased out for a period of five years and then the lease can be renewed. The annual rental increases between 15 to 20% .
- Ratio of Investment: Commercial properties are expensive than the residential properties. Factors like posh location and huge size of the commercial properties are a major reason for the high price. However, whenever you are looking for a commercial space, you can also choose a small premise and purchase a commercial property within a small budget.
- Fixed Costs: Despite of the fact that the commercial property has been leased or not, there are a few operational costs that are involved. However, these fixed costs vary and depend on the property type.
Benefits of Investing in a Commercial Property
By investing in a commercial property, you can increase your cash flow in a number of ways. Let us have a look at a few ways:
- Buy and Exist Strategy: The best way to collect a huge amount of money is by first buying the property, then building an equity and then finally, selling it off. You can earn huge profits when you sell off the property.
- Monthly Rental: Leasing your commercial property is one of the easiest ways to generate monthly income without working hard. A good amount of money goes into your pocket if you lease out the commercial property owned by you.
- Run your Own Business: If you are a businessman, there can be nothing better than owning a commercial property. You save the money that you would have otherwise spent in paying off as a rent to the landlord, had you not owned the office space.
- Let out the Extra Space: If the commercial space that you own is more than that required for your business operations, you can easily rent it out. This brings in extra income and at the same time the extra space that your commercial building has, does not go waste!