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Blog by Thomas Krause

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Is It A Wise Decision To Invest In Commercial Property?

There are many benefits of investing in commercial property. However, investing in commercial properties is a little bit more mysterious compared to their residential counterparts. Most of the people are comfortable with the residential property sales and acquisition as they truly understand what it entails. However, with the increasing interest on commercial properties these days, it is probably time you also gave them some consideration. 

There is more to commercial property buying than what actually meets the eye. What with all the terms and conditions in commercial dealings? Here is a summary of the main factors and risks to give consideration to. But before getting into these, it should be noted that commercial properties come in three main categories. These are offices, retail and industrial entities.

Risk

It is riskier to invest in commercial properties as the vacancy rates are quite high. For example, after heavily investing in a warehouse, it could take a while for the building to get its first tenant. On the other hand, it is quite easy to find new tenants for a residential property. In most cases, all it takes is a few weeks for the whole building to fill up. Moreover, if the sole tenant of your property has to close down his business due to tough economic conditions, you too could end up facing extra hard times for lack of new tenants. Residential property such as rental houses can be quite resilient when it comes to economic factors over the long term.

Return

Residential property investment, for instance buying a home, is comparatively low risk, and as a result, the returns are relatively low. Investing in commercial properties on the other hand is a better option as it offers higher returns, though at a comparatively higher risks. For instance, while a residential property such as a flat averages a return of around five percent, an industrial property such as a warehouse might average eight percent.

Lease duration



In a majority of cases, residential property leases tend to be no more than one year. Commercial property leases on the other hand are generally much longer, with most tending to be more than five years. It is quite common to have leases that exceed the initial five-year duration, with the option to renew for another five.

Cost of maintenance

It is relatively cheaper to upgrade a residential property compared to their commercial counterparts.  For instance, a new paint job, bathroom, kitchen and new floor covering will cost around $15000 to $35000. Renovating a commercial property on the other hand tend to be more costly as it involves more than just painting the walls with a new coat of paint. Apart from this, upgrading the building to meet new safety and health conditions is likely to cost thousands of dollars.

Cost of entry

It is much expensive to buy a commercial building compared to purchasing a residential property. For instance, getting retail space of CBD office is basically quite expensive due to their locality. Moreover, industrial properties situated on the outskirts of the town also can be quite costly due to their size and the available amenities. Nevertheless, these costs can be minimized by acquiring smaller sized commercial properties.

Tenants

Availability of quality tenants is an important part of investing in any kind of a property. In commercial property circles, large corporate and government are considered the best tenants, and hence are highly regarded. This is because they are likely to rent your property for a long duration of time and mostly do not default on the rent.

All in all, commercial properties are likely to bring in more income when compared to residential properties. As a result, they are worth your time and consideration. If you need the help of a reputable Canmore real estate agent based downtown to help you with commercial real estate investment, do not hesitate to contact us today.