There are three types of real estate which are commercial, residential and industrial. From its name, commercial real estate refers to buildings that are used for commerce, or rather for business purposes. Residential real estate refers to the buildings used for domestic living purposes while the industrial ones are used for the production of goods and services.
Investing in commercial property has been seen to be more lucrative when compared to the others due to a couple of reasons. Here are some of the benefits of investing in this area.
The best reason for investing in a commercial property is the income potential. Comparing the earning potential with that of residential properties, it is seen that they generate an annual return of between five to ten percent of the purchase price as opposed to the residential ones which generate between one to four percent.
When dealing with property, there is the tenant and the owner. In domestic living places, the relationship between the landlord and tenant is informal, and this may compromise the way that property is managed. However, things are different with commercial property which are owned by LLCs and not individual people. The buildings are operated as a business and this the customer relationship is strictly professional and courteous.
The maintenance of a commercial property is way cheaper than that of the residential ones since the tenants, who are mostly business owners, have a vested interest to ensure their units look presentable. This way, the interests of the tenant and those of the owner are both aligned, and this makes maintenance of the property straightforward.
Most businesses operate during the regular working hours except the nightclubs and late night drug stores among others. People managing commercial property have an easy time dealing with emergencies and have minimal worries concerning overnight calls regarding failed systems. This is not the case with the residential property where one can get a call in the middle of the night for an emergency. Furthermore, commercial properties are managed by companies, and it is likely that an alarm monitoring service will be placed and the company responsible will be the one responding to any emergency calls.
Gauging the value of commercial property is easier and more objectively done. One can simply request the income statement of the holding business and determine the price of the property based on that. This valuation is important as it helps to make the selling process faster and more transparent as opposed to the valuation of residential property which may get a bit emotional and affect the true value of a particular house.
The last benefit of investing in commercial real estate is that the law has few clauses protecting consumers and governing the way leasing should be done. This is because commercial property leasing is done professionally and there is very little room for extortion.
Investing in commercial property is not perfect as there are some downsides associated with it. First, one requires a lot of time and commitment when venturing in this area since the logistics and things involved are quite a lot. It requires a more significant initial investment and has more risks associated with it when compared with the others.