There are many reasons why you may be considering a commercial real estate investment, but perhaps chief among them is the simple idea that it will provide some relatively passive income for you or your business for many years to come. However, anyone with experience in this realm will tell you not everything about commercial property investment is quite so straightforward, and that there are numerous things to consider before taking the plunge.
However, many of those considerations are likely to turn out as net positives as long as you take the right approach with your investment. The following five details could all be strong proof of why commercial property investment could be a boon for your finances going forward:
Perhaps the most straightforward reason why many experts recommend buying commercial investment property as opposed to residential options is that the latter tends to come with shorter lease terms. Typically, residential leases will last about a year – sometimes less, including month-to-month in some cases – and that means a potential for risk that a tenant moves out and is difficult to quickly replace.
On the other hand, commercial leases tend to be multi-year, and depending on where your investment property is located, demand for commercial space can be greater than it is for residential, meaning your risk of a lengthy vacancy can be relatively low.
Stronger returns per square foot
In many cases, commercial renters will pay a premium for a given space versus if you had a similarly sized residential location available. There may be many reasons for this, such as the fact that commercial properties typically must be on the ground floor, which tends to be more expensive, and often because commercial spaces come with specialised features that make them ideal for certain kinds of tenants.
Another reason for stronger returns is that commercial leases tend to put most of the costs of operating a space, such as insurance and utilities, in the hands of the business renting the space, rather than you as the owner. Tenants may also be more likely to look after the physical well-being of the property, reducing your management and upkeep costs.
That means more of the money they pay to you in rent goes back into your pocket, rather than to maintaining the property itself.
As the building you own gets older, it may lose some of its value, even if the property itself is growing in value at the same time. As the owner, you will be able to write off the lost value of the building on your taxes, and there are numerous deductions you can take full advantage of. A little research will help you determine the best way to calculate your tax liability each year you own your commercial property.
A diversified portfolio
Just like anything else in investment, it's good to have your fingers in a number of different pies. Getting into commercial property may be a good investment simply because you don't have money in it yet, and it may give you a bit of a cushion – and reliable income stream – even if your other investment avenues run into rough roads.
Whether you're brand new to the commercial real estate game or just trying to expand your portfolio, working with experts that have years of experience in the field will help you find the best possible options based on your unique wants and needs. At Ray White Surfers Paradise, we can leverage the experience of countless sales we've seen through to completion, and help ensure that you find the exact right investment opportunity you're looking for. Get in touch with us today to learn more.