Buying commercial property as an investment can be a daunting task for the beginner, with several pitfalls. To enable a smart investment choice, some useful tips have been shared in this article.
In the aftermath of the real estate property market meltdown, people were naturally averse to taking risks, by investing in residential and commercial property. As a seasoned investor would advise you, in such bearish times, there are a lot of opportunities to take advantage of.
With the real estate prices hitting rock bottom in recent times, many properties can be bought, at a fraction of the price they would have earned during boom time. While there is substantial amount of risk involved in buying commercial property, with proper research and wise choice, there’s profit to be made. At the outset, let me expound some of the advantages of investing in properties of the commercial kind.
Advantages of Investing in Commercial Property
Commercial properties primarily include office spaces, shops, storage warehouses, industrial spaces or any other piece of real estate that is leased out or used for commercial purposes. Location and space are two of the prime requirements of businesses and leasing a property is a much more affordable option for them, instead of buying it. This presents commercial property investors with an opportunity to make substantial profits.
One of the prime advantages of investing in commercial properties are the long leases and high rent that owners can earn. Compared to residential properties, commercial ones tend to maintained a lot more professionally, which automatically reduces expenses. The high percentage of return on investment, in excess of 8% to 9%, justifies commercial real estate investment.
Properties in prime locations can expect an annual hike of 3% to 4% in rent, which guarantees higher returns in the future. By handing over the maintenance and administration to a commercial property management firm, you can simplify your life and reap profits in the long term. Commercial property that are located in prime business zones are always in demand and hence you can expect a decent resale value in the future, when the prices in that locality appreciate substantially.
Commercial Property Investment Tips
You need to appreciate the prime importance of ‘Location’, when it comes to investing in commercial real estate. Businesses are looking for office, shop spaces, warehouses with all the necessary amenities and resources in their vicinity. So choosing a commercial space in the right location is the first important thing and it requires a substantial amount of market research to find such properties. You will have to network with real estate agents, who have a database of such properties on sale.
Decide on how much you are willing to invest, which will automatically limit your choices and help you focus on what kind of properties you can afford to invest in. Once you have shortlisted a few properties, determine the asking price and the projected returns through lease, after accounting the maintenance and taxation costs.
If you are thinking of buying commercial property and plan to arrange for the investment corpus through a mortgage loan, do the math and determine the profits you will gain in the future after maintenance costs and loan installments. If the math shows you that the investment is a feasible one and you are guaranteed that your principal is safe with decent returns, go for it!
If you have a commercial space in a prime location, there is always going to be demand from businesses and the chances of your investment being highly profitable are higher. Work out the yearly maintenance costs for the property, research every aspect of the investment thoroughly before going ahead. Here’s me wishing you all the very best for your commercial property investment endeavors!