Investing in Commercial Real Estate: Pros and Cons

Commercial real estate can be a wise investment for those looking to diversify their portfolios. However, as with all investments, care should be taken to know the pros and cons of what you’re planning to invest in. Obviously each individual case will be unique and you may have different concerns with your investment, but there are several common positive and not so positive things to consider before you take the plunge.

The Pros of Investing in Commercial Real Estate

Here are a few of the reasons many investors find it wise to throw their hat into the commercial real estate ring:

• Because tenants of commercial properties are often retailers or other business owners, their spaces are exposed to the public.  That means that greater care will be taken with upkeep and appearance of the unit.  Which makes life a bit easier for you, the investor.
• Commercial real estate investments often add to your network of business connections and professional relationships. You’ll be dealing with professionals and companies instead of individual families, so you can build relationships that may benefit you.
• The income potential in commercial real estate is much higher than in residential.  Multiple units mean more earning capacity, and square footage has more of an impact on income than in residential properties.
• Lease terms are more flexible and fewer laws govern commercial leases.
• And when it comes to the lease, you can choose a triple net lease if your tenant is a larger company.  A triple net lease usually means that the property owner doesn’t pay expenses on the property, just the mortgage.  The lessee handles the rest (real estate taxes, upkeep etc).

Cons of Investing in Commercial Real Estate

While there are many benefits to investing in a commercial property, you should be aware of the issues that may come up when you’re a commercial real estate owner.  These things shouldn’t scare you off from investing in commercial property, but will give you an idea of challenges you might face.

• More tenants mean more time commitment.  You have to be available to many tenants rather than just one as you would in a residential situation.
• The initial investment is usually bigger in commercial real estate.  Down payments on commercial mortgages are usually higher.  So be prepared when you begin your investment.
• Commercial properties are often open to the public or get a multitude of visitors.  This means there is an elevated risk that the property may get damaged or someone on the property can get hurt. Take this into account when investing and selecting insurance for your property.
• You may need professional help.  Unless you’re a die-had licensed DIYer you’ll need someone deal with maintenance issues. However, enlisting a property management company like Caldwell Commercial means that you can rest easy knowing your investment is being taken care of by experts in commercial real estate.

Now you have a basic understanding of what the positive aspects and challenges of investing in commercial real estate, you’ll be better prepared when you start making your investment plans! If you have further questions or want to inquire about our company and its services, please contact us!