Investing is one of those things people want to do but don’t know whether or not it’s a good idea.
With this in mind, it’s time to look at investing in commercial properties and whether this is the right path for you. Here’s a look at the pros and cons of this form of investing.
What are Commercial Properties?
Let’s begin by defining commercial properties. In general, commercial properties refer to any property that is utilized for commerce-related activity (i.e business offices, restaurants). If money is being made on the premises, it is termed as a commercial property and has to be noted as such legally.
Pros
1) Longer Leases are Common
You are going to see long-term leases being signed because businesses want to stay in the same spot for longer periods. For example, let’s assume you are giving the property to a restaurant. They will not want to pick up and move every year!
This is why they are going to be willing to pay more and sign a longer agreement (i.e. 5+ years) without thinking twice. This is going to be their preferred option and that ends up working for you as an investor.
2) Greater Returns in Comparison to Residential Properties
Residential properties are a common option for investors but what if you were able to make more money in the same market? This is where commercial properties stand out as the number one option available to you for a bigger return annually.
A commercial property in Cincinnati is able to bring a lot more every year through leases and that is important to investors. if you are willing to take the risk, you are also going to be rewarded for it. This is why it’s best to know what you are getting into before investing and then moving forward with a particular option.
3) Easier to Follow Trends
Most people don’t realize this but it is a lot easier to follow trends with commercial properties. For example, if people love the idea of coffee shops in the area then you can follow the trend. You don’t have to make something out of thin air and it will still do well as long as you put it in the right spot.
This is ideal for those who want to make a good amount of money and follow the societal trends that are in place at that point in time. As you go through the process, you will learn more about how this works and what you need to do.
4) Easier To Accept Cheaper Properties for Economical Progression
There are many options in this sector and that’s something you are able to work with as an investor. For example, you are able to find a small parking lot in the downtown core, make a purchase, and then charge people for parking there.
This happens all the time and is a wonderful option because it is easier to accept cheaper properties. However, you have to realize it is all about doing your research. The wrong option or wrong location can lead to major issues down the road about financial viability. Think about this before putting your money on the line.
Cons
1) Expensive
This is a given when it comes to commercial properties. You are going to have to put in a lot of money to get your foot through the door. While there are cheaper options out there (i.e. parking lots), you are generally going to want other options, which end up being expensive.
If you are willing to put up the initial down payment, you are going to be well on your way to a positive investment. There are many details to think about and this would be one of the main ones as an investor. If the numbers don’t line up, you can make the investment!
2) Heavily Reliant on Demand
You are going to be heavily reliant on demand because there has to be someone willing to take up the property. This is not the same as a residential property where you are able to let it sit and appreciate. Yes, the value may go up here but the real money is going to come through signing a lease. This is what you will want to do and it is all down to demand. If people don’t want what you are offering, this is going to end up becoming a serious loss on your portfolio.
3) Can Lose Value in Economic Downswings
Economic recessions are a horrible thing and they can end up sucking value out of the commercial property. A residential property is able to push through these issues but the same cannot be said for commercial properties. They are far more prone to reacting in these markets and that is why you want to be on top of things when it comes to the leases. You want to have them in place as soon as possible, so you are not having to deal with additional worries concerning depreciation.
4) Harder to Secure Initial Financing
It’s important to note getting a mortgage on one of these properties is a lot harder than residential properties. There is a great risk attached to it and that is something lenders think about. As long as you have a good credit it will not be an issue but it’s something to keep in mind.
Investing of any kind is a major step in your life and has to be done with attention to detail. It’s important to focus on what you’re doing and ensure things are done the right way. This is why it’s best to invest with a purpose and look at these advantages or disadvantages with your needs in mind. Is this something you are willing to put a bet on? Is this something you are willing to work on over the long-term? If yes, then it is time to buckle up and start doing your research on what’s the best option in your region.
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