3 Reasons Why Owning a Commercial Property May Make You More Money in Real Estate Investment
Making a Commercial Property Investment
If you ever have been a landlord for residential property, I am sure that you get complaints from tenants about leaking roofs in the middle of the night. But what keeps most people back from investing in commercial real estate is the fear of the unknown since not many of us are born commercial landlords.
However, we can learn from Donald Trump who spent his energy developing large office complexes and that’s where he made his money.
Reason #1: Renting out commercial property
Rental Yields may be better for commercial properties For commercial property like shop space, the rental yield that you can command depends directly on the human traffic in the area. Thus if you invested money in such a property investment, the monthly cash flow would be more than an equivalent costing residential property investment in the same area.
In addition, most business owners when they come to view your property have already identified your street as a good one for their business in terms of human traffic and usually want to start renting from you, thus you have the upper hand in negotiations. Contrast this to most residential tenants who have a huge variety of properties to choose in your vicinity and if they do not like your property or your rental they can just as easily go to another property.
Reason #2: Improvements on Commercial Property
Improvements on the property Business tenants generally treat properties different from residential tenants. A business owner who is renting property would generally fix small defects in the property so that he can carry on business and would not bother the landlord about such small problems. But additionally, most small business owners would generally carry out small improvements in the property that could boost the property value of your commercial property.
An example of this could be the installation of a PABX System and wiring up the whole office for a local area network. This could save your new tenant a lot of time and could be used to give additional value to the terms of the rental that you are providing.
Another example I heard recently involves office partitions. Law firms and accountants generally have the same set up in their offices and when law firms move, they generally would have to spend money renovating so if you have existing partitions in your commercial property, you might be able to get a whole professional firm over to rent your property. Note in contrast, in most residential property, tenants tend to love to puncture holes in walls without permission, repaint certain rooms and at the end of the lease and as a result most landlords have to do lots of repairs just to return the property into its original condition.
Reason#3: Rental Collection
Typically there are some tenants that are not very prompt with their rental payments and therefore the ability to choose tenants who would pay would save you lots of money and make you even more in the longer term. Imagine having to loose a few months of rental payment and spend money on lawyers to evict the defaulting tenant from your property.
If you have a commercial property, you can choose a tenant that has lots of goodwill established in your premises. This would mean that the tenant has a lot vested in your property and would therefore pay his rent on time to stay out of rental disputes. Contrast this with a residential property where the tenant can run away without paying your monthly rental and has nothing very much to loose. Collecting rental from residential tenants seems to be more difficult as well for some strange reason.
In conclusion, this article has highlighted three reasons why commercial property real estate investment may be better than private real estate investment. That said, making money with real estate is like value investing in stocks, the profit is made in the buying. The time spent looking for a good property will reap its rewards later in the form of good rental yield and capital appreciation over time. Take massive action today and look for the real estate investment property that you think meets your real estate investment needs.
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Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com. GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.
Alan L. Olsen, CPA, Wikipedia Bio
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