When you think of real estate, the first thing that comes to mind is probably residential property. But what about commercial property?
Commercial real estate is essentially any property that is used for business purposes. This could be an office building, a retail space, or even a factory. The main difference between commercial and residential property is that commercial leases are usually shorter, and the rent tends to be higher. While the residential properties are likely to be leased for a longer period of time.
We understand that buying a residential property can be a big decision and there are a lot of factors to consider. Commercial real estate comes with a long list of pros and cons. On one hand, leasing commercial property can offer tax breaks and other incentives that are not available with other types of leases. On the other hand, commercial leases can be difficult to get out of and often come with much higher monthly payments.
Pros of commercial property
Commercial property offers a number of advantages that residential property cannot beat. There is a wide list of reasons why people prefer to invest in commercial projects. If you are also going through the decision-making point of your life, let us start reading for a better understanding of the benefits of investing in commercial property.
Income potential
Unlike residential properties, commercial properties always have a higher number of tenants. A company is likely to stay in one location for a long time which means that you have a permanent source of income for a defined period of time. Commercial property is a great option when you are looking for an investment. Why? Because it offers a high return on investment. But it is not just the potential for high returns that make a commercial property attractive. It also has a low-risk factor. You do not have to worry about your tenants vacating the premises overnight. And that is a massive weight off your shoulders.
Stability
When you buy a piece of commercial property, you are investing in something that is going to be stable and steady for years to come. Unlike stocks or other investments, commercial property is a solid, long-term option that you can always count on.
Commercial property is an asset that will continue to grow in value over time. The value of the property never decreases but over time and development, your land will automatically start giving you more revenue.
Appreciation
Commercial buildings tend to be more valuable than residential buildings. Well, we have a number of reasons for this. For one, businesses are always looking for new space, so there is always demand for commercial property. Moreover, expanding businesses are always looking for better and more approachable locations so that they can hire more people and make better progress.
Ease in paying tax
When investing in commercial property you are investing in the future of your business. And as an added bonus. Commercial property provides a number of tax breaks that can help reduce your tax problems. For example, you can claim a depreciation deduction for the wear and tear on the property. You can also deduct the interest on the mortgage, and any expenses related to the upkeep of the property.
Long-term lease
One of the main advantages is the length of the leases. Typically, they are much longer than residential leases, which gives tenants a lot more security.
It also means that landlords can charge more for commercial space since they have less risk. And as we all know, high demand and low supply equal high prices.
Professional Tenant
When you rent commercial property, you are renting from professionals. The landlord has likely been in the business for years and knows what it takes to run a successful operation. When your tenant is a business owner, know that there are fewer chances of dealing with late rent, tearing of property, and infrastructure destruction.
Flexible
Commercial property is very flexible when it comes to terms. Landlords are often willing to work with you to create a lease that fits your needs. The tenant can also pay the rental amount per annum or semi-annum which is a good sign of trade for both parties. The landlord can use a big amount altogether and the tenant gets rid of paying rent every month.
Secure
Commercial buildings are secure when it comes to security. The commercial property is always located at a place where there are other operating businesses too. This is a sign of security for one or all businesses. This is important for businesses that deal with sensitive information or expensive equipment.
Cons of commercial property
First of all, commercial property is more expensive than residential property. You will also need a good credit score to be approved for a loan, and you will likely need to put down a larger down payment.
And then there are the ongoing costs. Commercial properties tend to require more maintenance and have higher utility bills than residential properties. So make sure you factor all of these things into your decision-making process.
High maintenance
It is no secret that commercial property is a big investment. And while it can be extremely profitable, it also comes with a lot of responsibility.
You must be prepared to spend time and money keeping it clean and in good condition. This is something that often goes overlooked by business owners who are busy chasing profits.
Huge capital is required for investment
First and the most important part of commercial property is to understand the fact that you are going to need a huge capital amount for starting your business. Getting your loan approved by any bank is the first milestone to achieve. Everything else comes after that.
After loan approval, you need to look for such high profile tenant who pays you enough to pay your mortgage and save some for yourself. It is all over a big step and definitely a big shot.
Economic Backup
It is very common these days for companies to shut their businesses. So what you have to do here, as an owner of commercial property, is to make sure that the company you are hiring as a tenant has a future.
Conclusion
After a complete analysis of the pros and cons of commercial property, we can say that investing in commercial property can be the best and worst decision you ever make. This is a big shot and can be done right with proper guidance and information. You have to take every step after keen observation. Your decision-making power plays a big role in establishing a well-reputed business in real estate.
