Pros and Cons of Investing in Commercial Real Estate

Posted by on January 23, 2020 in Investing and Insurance with 0 Comments

The commercial real estate enthusiasts must agree that it offers such a wonderful opportunity for those who want to improve their financial achievements and goals. the commercial real estate, although seems to be promising, also comes with the risks to consider. After all, there is no such thing as “flawless” in this world. Everything comes with a catch. Knowing the different sides of the coin will give you comprehension about the commercial real estate real face. Here are the pros and cons of Investing in commercial real estate according to Consorto.

PROS

Obviously, the income potential

We cannot neglect the fact that the income potential of the commercial real estate is much higher than the residential ones. The commercial real estate has greater opportunity to offer more earning potential when we compare it with the residential real estate investment. The annual rate of return for the commercial properties can be in the range from six percent to twelve percent. No matter how we look at it, the rate of return is much better than the residential properties which come from one percent to four percent annual return.

The professional ecosystem

We must not overlook the fact that the commercial real estate is full of professionalism. Rather than the individual name, you will operate the commercial property based on the LLC agreement. Multiple investors can possibly manage the same real estate. Therefore, it will be much straightforward to maintain professional relationships with the other people in this ecosystem. The commercial tenants will treat the interaction with the business owners and investors in the layer of professionalism. Everyone will support each other in courtesy.

All parties will work well together

The thing about the commercial property that the residential property might not have is the ability to maintain the public image. In any business niche, public image is very important component to maintain their success and productivity. If the public image is bad, they won’t be able to survive. That’s why the tenants in the retail or office space will do whatever it takes to make sure that their properties are appealing and maintained well.

Both tenants and the vendors will make sure that the quality of the property is well maintained. Therefore, as an investor, you can have peace of mind knowing the fact that our investment is safer as well.

You work when they work

The good thing about the commercial real estate is that you only need to work during the business operational hours. Obviously, the business hours might be from 9-5. normally, the tenants will come home at night. Their business won’t open 24/7 unless they prefer to. That means you can also go home without worrying if the tenant call you in the middle of the night for some emergencies. Not to mention that the commercial properties also come with the ample security services and staff. So, if anything happens at night, the security company will handle the job. There is no more an emergency call in your phone and you can sleep well tonight without thinking about the security of the properties.

Easy to evaluate the property price

In the commercial property investment, it is much easier to evaluate the prices of the commercial real estate. You can also ask the broker to help you with accurate data to analyse. That means the numbers that you will receive is pretty much fair. After all, all of the parties treat this activity as business. The residential properties, on the other hand, are more likely personal pricing.

The high flexibility

With the commercial real estate space, it offers a wider variety of uses for the property owner. The available space is more flexible to be set up. Your tenants might have different purposes and willingness. Here is where the flexibility plays an important role in it. There can be different scenarios to play in the commercial property. There could be remodelling to suit the tenants preferences and needs. But the good thing is that you don’t need to be bothered with the funding. The tenants themselves will be paying for the remodeling and renovation.

The perk in taxation

If they said that the tax advantages are more prevalent in the commercial properties, then you should believe them. The tax advantages could be one of the most convincing perks of purchasing the commercial property for your investment. So, what is the tax advantage? First things first, you will have the leverage to claim your mortgage interest expense, as well as the taxes. The costs of maintaining the property will be deductible too since the tenants will take care of the maintenance and repair costs.

CONS

Only works for those who can commit their time and efforts

Obviously, it requires a lot of effort and time to gather all of your tenants. You will have to manage multiple tenants at the same time. And such complex is even more challenging than managing a single-family home tenant. The time and effort will be doubled or tripled. But you can always work with your team. For instance, you can hire a property manager instead of doing it all on your own.

Hiring professionals can be expensive

If you want to let the experts to handle the things for you, it won’t come out cheap. The maintenance and managerial issues are not something that can be handled by the ordinary workers. The professionals can set the price higher than your average employees. But it is what it takes to succeed in commercial property management. Work with reputable companies to ensure your successful outcomes.

Large funding

The up-front capital can make or break it. It is one of the reasons why many people backed off when it comes to the commercial property investment. The large capital needed not only for the purchase of the property, but also its maintenance, vacancy, and other types of expenses.

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