Commercial properties are properties or land invested in for the purposes of making a profit from rental income or through value appreciation. There are around six broad categories for commercial properties which include Retail, Office, Industrial, Health care consisting of Hospitals, Leisure and large multi family dwelling properties. Investment in commercial properties is a great investment for the future for the following reasons.
Higher Cash Returns - Compared to other real estate investments, commercial properties have the highest returns since the space is sold per square foot. This means that their return on investment is sooner than most other properties.
Longer leases - Commercial property leases are usually done for a longer period of time due to the nature of businesses leasing the space. The returns are therefore more reliable and aid in planning for other investments.
Variety Of Choice – For an investor looking to get in to the commercial property business, there are many entry options to choose from depending on their financial capability. It is now common for commercial office blocks to be sold as units meaning an individual investor does not need to purchase or build a whole block.
No Maintenance Costs - When a company leases a commercial property, they are expected to maintain the building at their own cost. This means lower operating costs for the commercial property investor.
Diversification Of Risks - In a large commercial property the investors have a number of leases running with their tenants. This means that if one of the leases is cancelled, the investor still continues to receive an income from the other existing leases.
Appreciation Of Value - Commercial property values tend to appreciate fairly well in comparison to other property investments and usually beat inflation growing the investor’s portfolio value annually.
Financing Options - Due to their stable income, commercial property owners are able to get financing on their properties for development of other investments.
Tax Advantages - Income from commercial properties have more tax advantages in comparison to many other investments.
There have been some concerns on the long term viability of commercial properties as seen during the recent credit crisis. The value of commercial properties fell up by 10% in major cities and a lot of foreclosures were reported. This is because many of the commercial properties are bought using financing with the properties as the collateral. For the real good investors, any downturn in prices offers an opportunity to buy at a discount. This is what happened and the investors who brought the properties during the period are happy since the prices have appreciated to their previous levels.
There are however some reasons for caution while investing in commercial properties because many are specialized and it may take time to get tenants after completion.
Commercial properties are location sensitive so sometimes the land values of the properties are high due to their prime locations therefore increasing the initial investment costs.
For an investor developing a commercial property on financing, banks usually require a higher down payment in comparison to other property investments and the investor is therefore required to have a huge capital outlay.
In the overall analysis, commercial properties are a great investment for the future since there will always be a demand for offices, retail, hotels and other types of commercial properties. The smart investor knows that in the long run, commercial investments perform better than most other short term gain investments.
Author Bio: Blogger who researches and talks about investments, commercial properties and property development finance