Investing in a Commercial Property
With the growing financial literacy in India, new investment opportunities pop up every day for investors. From stocks to bonds and cryptocurrency, it’s comprehensive investment options out there. Real Estate investment is one such option that holds the potential of earning high returns, growth, and passive income. Commercial or residential property can serve as a great investment option.
However, investing in commercial property is often more profitable than residential property.
Types of Commercial Property
- Office Space
- Retail Space
- Industrial Space
Commercial Property Investment
Investment in Real Estate is always tricky, especially when choosing between residential and commercial property. Taking this decision will be more difficult for someone new to real estate. Many people think that investing in commercial properties is only for big business people and investors. This may be true to some extent, but it is not always the case.
Even people with a low budget can invest in commercial properties like offices, shops, and showrooms.
With a virtual property or nonlockable space product, investing in commercial properties has become budget-friendly and less tedious.
Average returns in the last five years
Rental returns in the case of residential property are just around 1-2%, while in commercial property, it is approximately 6-10%. The returns in real estate have been consistent over the last few years, and according to market experts, it may continue to perform similarly in the next few years.
Let’s take a look at some of the advantages and disadvantages of investing in commercial properties:
Benefits of Commercial Property Investment
Higher Rental Income
The rental return on commercial property is always higher than the residential property. In fact, in some properties, returns can be in double digits. If the property investment is made solely from earning rentals, then the commercial property is undoubtedly better. Remember, commercial property investments are more likely to be cash-flow optimistic than their residential counterparts.
Longer Lease Period
Generally, commercial properties have a long-term lease period of three to nine years or sometimes more. If you got reliable and stable long-term tenants, such as big MNCs, government departments, or well-known reputable brands, you could earn rentals for a long time. When big tenants lease any space primarily, they invest heavily in furnishing and infrastructure, so there is significantly less chance they vacant the area before the expiry of the lease agreement.
Ease in Dealing with Tenants
In the case of commercial property, mostly the tenants are big companies, corporate houses, banks, or retail chains. It is relatively easy to deal with such tenants, and therefore one can be assured of professional behavior and no running around to get the monthly rent.
Commercial property agreements typically come with a built-in lease escalations clause, which calls for rental price increases at regular intervals in most cases every three years. Over time, these escalations increase the property’s value.
Commercial properties provide excellent appreciation over a more extended period than residential properties. Investing in a premium commercial property can offer an attractive return on your investment. If the tenant is a reputed bank, MNC, or big corporate house on one floor or in one section of the property, there will be a value appreciation for the rest of the property.
Regular Inflow of Income
There is a bit of uncertainty regarding the longevity of lease or rental duration in residential properties. In the case of commercial property, the rental is somewhat assured as there is a longer lease duration.
The income from commercial property is usually more consistent and regular than residential property, which is a significant advantage.
The Disadvantage of Investing in Commercial Property
While there are many positive reasons to invest in commercial properties over residential ones, still there are some negative issues to consider
Commercial properties, especially the most desirable ones, are costly and involve a heavy amount compared to residential properties. Sometimes commercial properties are so expensive that the number of resources needed to purchase the property limits an investor’s ability to diversify their portfolio.
Choosing The Right Property
Choosing the right property and perfect location requires extensive research and market knowledge. Therefore, a retail investor may find it extremely difficult to invest in commercial property due to a lack of adequate market knowledge and expertise.
Finding a Tenant
Finding the right kind of tenant for a commercial property may be a little more complicated than finding a tenant for residential property. The property can remain vacant for a more extended period when one tenant moves out, and another moves in due to difficulty finding a tenant.
There is usually a considerable expense in the upkeep and maintenance of a commercial property. In residential property, the maintenance expenses are limited to simple repairs like taps or minor electrical works and do not require considerable costs. The renovation or maintenance of a commercial property setup will usually be massive.
Though investing in commercial real estate may seem to be a lucrative deal, it is essential that you study the property carefully before purchasing it for investment purposes. If you have any queries or want the best commercial property deals, you can call me at 9599705565 or mail me at firstname.lastname@example.org