Leasing out real estate is one of the most lucrative forms of income-generating activities that a person can get into. The reason why a lot of people do not take advantage of this, however, is the difficulty of getting into the business of leasing out commercial property. Commercial property investment offers a lot of benefits, but exposes a person to a lot of risk. Getting into it can be frightening given the upfront costs and the length of time before a person can expect to get a return on their investment.
Despite all the potential risks, venturing into commercial property can be a good idea. Here are four simple reasons why you should consider investing money in commercial real estate.
- Longer lease contracts: Owning and leasing out residential real estate is how most people start getting into the business of leasing property. It is definitely a lot easier to venture into this business as it does not involve as much cost as a commercial property. The downside with residential properties is that the lease is often short. This is especially true when compared to commercial properties. Finding someone to occupy the commercial space may take longer than a residential property, but the reward is also more satisfying given the length of the contract. Lease contracts for commercial properties can typically range from five to ten years. Some last for three years, but this is considered uncommon.
- Better rent yields each year: Whether it is commercial or residential, the main reason why people would want to lease out property is to earn money. Commercial property outpaces residential property in terms of rent, making it a more lucrative investment opportunity. Investing in commercial property is a smart move as it gives better rent yields in a year than residential property investments. The strong yields are a result of the long-term contracts as well as the annual increase of rent rates typically associated with a commercial property.
- More flexibility in negotiating the terms of the lease: A major advantage to commercial property investments is that negotiating the terms of a lease is a lot easier because there are fewer laws that regulate them. State laws can hamper the residential property owner’s ability to negotiate the terms of the contract of a lease. The same is not true with commercial properties, thus giving the owner a huge advantage and a better position in terms of bargaining power when negotiating a lease.
- Interest alignment: One of the strongest reasons for investing in a piece of commercial property is interest alignment. The majority of businesses that rent out commercial space have a keen interest in maintaining a good storefront. To that end, these businesses will invest a lot of time and resources to maintain the commercial property. The lessee’s desire to maintain a good storefront for the business results in vigilance over the condition of the commercial property, which means that the property will require less oversight and input from the owner. In a nutshell, both the owner and the lessee have a vested interest in keeping the commercial property in tip-top shape, thus making cooperation a lot smoother.
- Not much of a risk: If you have a commercial property and, of course, lease for multiple tenants, there is not really much of a risk, due to the fact that there is a lower chance of losing your entire rental income at any moment. It is true, you might lose two tenants at a time, but there will still be other tenants to help you get income. If we are to make a comparison with a single-family residence, where your investment income really depends on the rent of a single tenant, we think this is actually a great deal.
- There are limited hours: It is well known that businesses keep business hours. This means that they work only during the day, so you probably would not get called in the middle of the night to solve a lost key situation or a repair. Of course, there will be issues in the evening from time to time, but you can install an alarm monitoring device, that will notify the authorities needed for the specific situation.
- Relationships are business ones: If we are to take things from a legal point of view, the commercial property relationship between a landlord and a tenant is between two businesses, and not two individuals. Which means that the interaction between the parts will be more professional and well-mannered. The relationship between them is a business one.
- High appreciation: Based on facts, if we talk about commercial real estate, we talk about the tendency to appreciate the value faster on this one, rather than on other types of investments. However, this is true if you can make enhancements for your property and if you think about money, at the same time. if you think smart, you are able to make your properties more tempting, which means that their value will increase in time.
- Less competition: If we are to compare it to the residential market, the commercial real estate market does not really have much competition, and this is one of the reasons why if you don’t act fast in the residential market, someone else will instead of you, and he or she will get the deal that you needed. This will not be the case in commercial real estate, due to the fact that there are not many investors who are interested in this, which means that you will be the one to get all the great deals.
- Be proud: It is true, it will not have an impact on your return on investment, but simply the thought of having an investment – a good one – of yours will be satisfying. Also, it might help the fact that your commercial property will have a great impact on your community and, of course, on its economy.