According to research, the United States has over 5.7 million commercial buildings. Moreover, as years go by, the number of buildings continues to grow. The fact that commercial property is a lucrative investment has made many business people consider making investments. However, investors have to know that there are risks involved. Below are some reason why commercial properties are suitable investments and the challenges you might face.
It is vital to understand that regardless of the risks taken, commercial properties are far much better investments than residential properties. Also, you increase your chances of earning ROI and build equity. According to research, most commercial properties bring an annual return of around 10% It is vital to know that this is 5% more than what is received from the residential properties.
Commercial properties are also beneficial since they involve the triple net lease. Here, the tenant is responsible for all the ongoing expenses such as insurance, taxes, and maintenance. Meaning that, an investor’s sole liability will be the mortgage. For this reason, commercial properties are the best option of earning passive income.
In most cases, the quality of commercial properties remain intact. Since most tenants are business owners, they acknowledge the fact that no consumers would like to approach an unclean place. This means that your property will stay functional and in good condition. Also, you will spend less on cleaning and remodeling the spaces for a new tenant.
When it comes to commercial properties, commercial property brokers advise that the evaluation be done according to the income of the current owner. On the seller side, the commercial property brokers should tag the price according to the capitalization rate in the area.
Here are chances you need to beware of before purchasing a commercial property. You need to understand that commercial properties fluctuate with the economy. Commercial properties are significantly affected, more than residential properties, if the economic conditions are severe. In hard times, not all business will get through, but, people will still need houses. Many will consider transforming a section of their homes into offices. Rather than waiting for depression, you should consider to prepare your property.
It is necessary to acknowledge that more modern features are a threat to older ones. If you have experienced commercial property brokers, they will inform you of how hard it is to convince tenants to check out older buildings. They will also inform you of how expensive it is to remodel a commercial property. When the number of new properties increases, there is a high likelihood that you will lose your occupants. Also, it takes so long to find tenants for a commercial property.