We’ll discuss a few in this post:
Safety Net – Since many commercial properties offer the opportunity to lease more than one units at a time, the chances of entire vacancy are slim. Compare this scenario to renting a single-family home. If the tenant defaults, the cash flow is dried up by 100%. On the other hand, only a percentage of cash flow will be eliminated when this happens for one or more units in a commercial property.
Think of the scenario as how most people perceive employment. With shaky levels of job security in tow, many people are just a pay check away from financial catastrophe. However, if there are other revenues of income set up prior to this, being laid off will be non-issue for some time. In fact, having another income stream is the main reason investors take on commercial real estate.
Higher Payouts – More units rented mean more cash flow for owners.
Stability – The average lease term for commercial spaces is longer than residential units. Some can even extend close to ten years. Small and large startups have one need in common: and that’s a central place to conduct business. As such, many will be reluctant to move, having done business in the same place for years.
Subsidized Taxes – Depending on the lease drafted by a lawyer, many commercial owners have the option to include property taxes as part of the renter’s payment commitment. This isn’t uncommon at all.
Despite these benefits, commercial investors should still be careful. Owning and managing commercial property doesn’t obliterate all risks of investing. Mismanagement, failure to keep tabs, not choosing the right property, and more can all snowball into a disaster.
Check out Jason Hartman’s tips for investing wisely. Prices are usually calculated based on square footage, wherein these can be estimated through market comparisons. For investors who choose the path of commercial real estate, networking is key.
Maintenance is also essential, even during vacancies. Be sure to dot your Is and cross all Ts in a commercial lease. This is recommended to prevent liability in case of accidents, defaults or other incidences – which will be discussed in future posts.
The startup cost for investing in commercial real estate will certainly be higher than a single family home. However, the rewards are well worth the efforts exerted during the initial stages of investing. (Top image: Flickr | Mrshife)
The Commercial Investing Center Team