Investing in Commercial Real Estate
This is a variation of rental property where you invest in office, retail or warehouse/storage property. It follows the same general pattern. You purchase a property and rent it out to tenants, who pay your mortgage and hopefully generate a profit.
Investing in commercial property is generally more complicated and expensive than investing in real estate rentals on the residential side of things.
So why invest in real estate at the commercial level?
Well, the principle of risk vs. reward determines that commercial properties are thereby more lucrative. Not knowing how to invest in property, especially on the commercial level, can be a very expensive learning curve.
For someone with experience and capital, Investing in commercial real estate is one of the best ways to invest in real estate because of the remarkable gains that can be made if done right.
On the plus side, commercial real estate usually involves long-term leases. Since the property is being rented to a business, they’ll want a multiyear lease. This will ensure the continuity of their business.
A lease can easily be for 10 years or more. The cash flow will be more steady since you won’t be changing tenants every year or two.
Appreciation on the property can also be more generous than it is for residential. This is especially true if the property is producing large annual profits. That’s more likely to happen with commercial property, since the tenant often pays for the upkeep of the building, in addition to the monthly rent.
Leases can be structured to give the landlord a percentage of the profits of the business as well.
On the downside, commercial property is often subject to the business cycle. During recessions, business revenues decline, and your tenant may have difficulty paying the rent.
The tenant may even go out of business, leaving you with an empty building. Since commercial tenants come in all shapes and sizes, it may take months or years to find a new tenant for your property.
Investing in commercial property is for more experienced investors who have a higher risk tolerance. It’s a true high risk/high reward investment.