Pros & Cons – 6 Benefits and Challenges of Investing in Commercial Real Estate

The low bank interest rates have led many people to wonder whether putting their money into something else could provide more lucrative returns. After looking around, you may have realized that one of the most desirable options is commercial real estate.

However, before you start shopping, consider the possible advantages and disadvantages of investing in commercial real estate.

Pro: Plenty of Experts Can Help

Even if you have never invested in anything and the prospect of doing so daunts you, it’s helpful to know that experts are available to assist. For example, many commercial real estate agents can help with most parts of your property hunting journey.

Once the deal is done, they can then assist with securing tenants for it or selling it for you in the future. You can also rely on property experts to provide forecasted returns and navigate the paperwork and legal jargon you’ll likely encounter.

Pro: Objective Price Evaluations

Determining a suitable price for a residential home can be hard work. Often, buyers purchase with their heart, which can make calculating a value complicated. That’s less likely to be the case with commercial properties.

You can find out how much a property is worth by factoring in how much income it produced for the owner, and what the area’s cap rate for commercial properties is. Emotion rarely plays a part in the decision.

Pro: Reasonable Earning Potential

Depending on which property you buy and where you buy it, the earning potential can be worthwhile. When you compare your returns in the bank to those of commercial property, even a poor-performing commercial structure is likely to offer a greater return on your investment.

Most commercial properties offer an annual return of up to 12% of the purchase price. In contrast, residential properties can vary from between 1 to 4%. In 2021, national banks were only offering interest rates of around 0.01%.

Pro: Triple Net Leases

When you purchase a residential investment property, you have to pay all the expenses that go along with it. Commercial properties sometimes work a little differently.

In some cases, the leaseholder will pay all property expenses, including the real estate taxes, purely so they can renovate and adjust the premises to suit their brand. As a result, all you have to pay for is the mortgage.

However, triple net leases tend to be more common among large names, chains, and brands, as opposed to small businesses.

Con: Time Investment

When you decide to invest in commercial property, you are investing your time as much as your money. This is true when you’re hunting for your property and after it’s in your name.

If you have multiple tenants in your building, there are multiple things to worry about, such as common area maintenance costs, building management, and more. Fortunately, there are property investment advisors and property managers out there who can handle many of the finer details on your behalf.

Con: Bigger Costs

Not only is a commercial building a much more significant initial investment than a residential property, but the ongoing costs can also be larger. It’s all relative, of course, but you have to ensure you’ve got funds set aside for large bills.

For example, the average commercial roof could cost you over $40,000 to replace, whereas a residential roof might only cost you $10,000.

Any investment you make is going to have its advantages and disadvantages. Fortunately, the benefits do tend to outweigh the disadvantages. If you’ve been considering investing your hard-earned money into something, there are many reasons to put the commercial real estate at the top of the list.

John Morris
John Morrishttps://www.tenoblog.com
John Morris is a self-motivated person, a blogging enthusiast who loves to peek into the minds of innovative entrepreneurs. He's inspired by emerging tech & business trends and is dedicated to sharing his passion with readers.


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