Mention the word investing, and most people’s minds automatically turn to stocks. While there is certainly money to be made playing the stock market, this sort of investment is very risky and not for the faint of heart.
Another investment avenue that has become very popular recently is real estate investing. Many real estate investors prefer to buy residential properties, but commercial real estate is where the big bucks are made. Here are some of the unique benefits of investing in commercial real estate:
1. High Income Potential
The number one reason to consider commercial property investment is its high earning potential. The average return on investment (ROI) for commercial properties is between 6 and 12% per year, while residential single-family properties only generate 1 to 4% per year.
Expanding on this point, commercial properties normally get longer rental periods than the average residential lease. Terms ranging from 3 to 10 years, commercial property leases generate a reliable income for a much longer time than 6 months or 1 year residential real estate leases.
2. Tenant/Landlord Professional Relations
Because commercial property owners tend to be LLCs rather than individuals, there’s more of a business-to-business relationship between tenants and landlords. Small business owners who rent space are pleased with their livelihood, and thus understand the property’s value to themselves in addition to to their owners.
3. Limited Operational Hours
Most commercial properties close part of the day, meaning your hours of operation are limited to their opening hours. Barring an emergency like a fire or break-in, you should have the ability to sleep well at night, unlike a residential property owner who has to take care of things like locked tenants and emergency repairs around the clock.
4. Lease Terms with More Flexibility
When you invest in a commercial property, you have more leeway in making lease terms than if you own a residential property. With residential properties, there are several state laws about bail, eviction, and more that dictate most of your rental terms.
5. Forced Honor
Unlike residential properties, whose values are largely based on the rates of other real estate in the area, commercial property values vary according to the amount of income they generate. This means that if a certain property generates significant cash flow, it will likely be worth more.
A savvy commercial property owner can forcing the appreciation of a property by doing things like renting to high-quality tenants, increasing the monthly rent, guaranteeing the property is in the best use possible and adding facilities to increase revenue.
6. Less Competition
Investing in commercial properties such as shopping malls and office buildings is a big undertaking. This is not something every investor should try, which is why many choose to invest in residential property. For experienced or reasonably savvy investors, there’s less competition in commercial property investment.
In addition, despite requiring a large up-front monetary investment, banks are more willing to extend mortgages for high-performing commercial properties than for residential ones.
There are many ways to invest your money to increase your wealth. From playing the stock market – which is very risky – to investing in various kinds of real estate, one of the least risky and most profitable ways to make money is by investing in commercial real estate. With benefits such as stable returns, less competition, and high-quality tenants, commercial property investing is a fantastic way to generate a gradual income and save for retirement.
