Whether you are highly experienced in the realm of residential properties or you are new to real estate investing altogether, there are a few important considerations to keep in mind when dealing with buying and owning commercial real estate properties.
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The first, and arguably most important, factor to consider is the property’s earning potential. A wise commercial investment can yield a far greater return than even multiple residential properties. The keyword here to note is “wise.” You’ll find that there are more complex details upfront, so it is important to make sure you do thorough research.
During your research you’ll find that calculating the valuation of a potential commercial property can be a bit more complicated than residential. You should become familiar with your market cap rate values and understand that this is a factor you can influence within your property. So it is something you can make work to your benefit. This is in contrast to residential properties, which often fluctuate in price. If you’re a homeowner you probably understand the emotional component at play here. Residential valuation tends to be much more subjective.
Some other vitally important differences in the two markets are the leasing structure and symbiotic business relationship at play in commercial real estate. Again, this can be a bit more complex on the commercial side, but it is something that can be an asset in the right hands. For instance, one way to increase the value of your property is to find tenants that are low-risk, long-term, and a good fit for your commercial building. There is more flexibility in the leasing terms for commercial property.
In this context the symbiotic business relationship means that both the property owner and tenant have a vested interest in the financial success of the property. As any residential property owner can tell you, this is not often the case with rental properties. The commercial property owner usually only pays for the mortgage of the building while the tenants maintain the integrity of their leased space. These are major contributing factors as to why there tends to be a great deal more stability within the world of commercial property.
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Another desirable attribute of commercial property is that most businesses close at night and have fewer after-hours emergencies. This is another way in which it is a stark contrast to the unpredictable issues arising at a place of residence. Many commercial property owners even outsource their maintenance or other managerial aspects of running their building to a property management company. If you’re too busy to dedicate the time to run a commercial property it might be wise to look into this option. In this way you can further simplify your investment with peace of mind.
As you can see, doing your homework on the front end could ultimately result in some major financial gains for you as an investor. Commercial real estate is certainly not for everyone, but if you are willing to put in the time and effort to make a sound investment there is a lot of money to be realized, on both rental income and property appreciation.
Based in Yucaipa, CA, Regioncy Real Estate provides commercial and residential property owners with advisory and management services. Regioncy focuses on multi family, retail, office, industrial, asset management and a broad menu of residential services. Our mission is to help our clients build, grow and preserve long term wealth by providing superior advice, strong representation, professional market knowledge and expert analysis. Contact us here.