Looking to amp up your investment portfolio? Consider investing in commercial real estate. Commercial properties can potentially offer a greater return than residential properties. Owning a rental apartment or a rental home is beneficial, but there are typically more risks involved. That’s why it’s important to fully understand investing in commercial real estate. People often think that it is the most difficult kind of property investing to do, but this isn’t always the case! Learn more about this potentially valuable addition to your investment portfolio.
What Is Commercial Real Estate?
Commercial real estate involves properties that are used for business-related purposes instead of providing living space. Commercial or properties may include any of the following:
- retail buildings
- office buildings
- industrial & warehouse buildings
- mixed-use developments
Each property requires a specific type of management. One property may be better for you to manage than another. You will have to decide what’s best for you and your financial situation before moving forward.
Advantages of Purchasing Commercial Property
It’s a big decision, but there are plenty of benefits to choosing this type of property over residential property.
High annual return.
One of the greatest reasons to invest in commercial real estate is the high earning potential. Commercial properties often have an annual return of the purchase price that is anywhere from 6% to 12% depending on where the building is. That is a much higher range of return than the annual return for single-family real estate.
Business to business interactions.
Unlike renters of family homes or apartments, small or medium-sized business owners would be the ones to lease your commercial property. This would likely make it easier to communicate in a timely and professional manner with your retail tenants.
Commercial property tenants are more likely to try hard to maintain their store and storefront. The way the property is perceived affects their actual business. This positively benefits you as the commercial property landlord. Tenants will try to maintain the quality of the property, and you will likely retain more value in your investment.
One of the greatest benefits of owning commercial property is the work-life balance. Typically businesses don’t run overnight. That means that businesses won’t typically have emergencies that require your intervention unless there’s a break-in or a fire. Repairs or lost keys won’t often be a problem at night, and you’ll get to spend that time with your family instead.
Price evaluations are simpler.
Price evaluations will typically be easier for commercial real estate. You can request the current owner’s income statement to determine what you should pay for the property. The seller’s asking price should be set at an objective price where an investor can earn the area’s prevailing cap rate for the type of commercial property they’re looking to buy. Alternatively, homeowners often subjectively base residential prices on their needs and desires.
More flexibility in lease terms.
Another major advantage of investing in commercial property is that the local laws are on your side. There are fewer consumer protection laws that cover commercial leases than those that govern state laws for residential real estate. In the end, this can be much more profitable for your business endeavors.
Sahene Construction | Commercial Real Estate Contractors in Baton Rouge
If you find yourself interested in commercial property, the Sahene Construction team can help. We can build your commercial property from the ground up, or perform any renovations, remodels, or updates that may be needed. Check out our work, or contact us today for a free consultation.