The Pros and Cons of Investing in Commercial Real Estate
Updated: Apr 15, 2019
Almost any property could be a worthwhile investment—if you know how to manage it properly. You also need to know the unique risks of investing in commercial property (and the unique benefits as well).
Here are a few pros and cons of investing in commercial real estate that you need to know before you jump into the market.
Pro: Higher Rent
One of the biggest pros of commercial investing?
Commercial properties have a few key advantages over residential apartment buildings: they’re more centrally located, they tend to be larger, and they usually come with more extensive resources and services than those provided by an apartment complex.
Because of this, you can charge much higher rent in commercial buildings than residential apartments. And because your tenants are businesses, they won’t blink at the higher rent rate. Plus, commercial leases tend to be longer—where residential leases usually last between six and twelve months, commercial leases can last between three and ten years.
Con: Greater Economic Vulnerability
When you invest in residential property, you’re investing in a property that people will need no matter what. After all, people need to keep a roof over their heads!
Commercial real estate doesn’t work that way. Your tenants are businesses, and if the economy takes a dive, those businesses may winnow down their operations—or close their doors altogether.
When this happens, you need to find a tenant quickly or risk losing money on your investment. In a struggling economy, most businesses aren’t looking to relocate.
Usually, when you rent out a commercial property, you’re doing it to cover the costs of operation—maintenance, insurance, services, taxes, and the like. You might make a small profit, but the real returns come from the value of the property itself.
A smart investor who buys a commercial property when it’s relatively cheap, holds onto it for eight to ten years and sells it during an economic upturn can walk away with millions in profit.
Of course, this technique only works if you know how to read economic signals (and if the economy continues to function in a healthy manner). A recession can cause your property value to plummet, even if you make up some of the lost value when the recession is over.
Are You Ready to Invest in U.S. Commercial Real Estate?
Knowing all of that, do you think you’re ready to invest in US commercial real estate?
If so, we’re here to help.
We help make real estate investment uncomplicated so that your money can work for you while you continue living your life to the fullest. Whatever options you’re looking for, we can connect you with great US real estate options with even better returns.
Want to find out more about how we can help your money grow? Use our contact page to start the conversation.