Commercial properties can be a good investment opportunity. For your money, commercial properties typically offer more financial reward than residential properties, such as rental apartments or single-family homes.
Although residential and commercial properties both have proven to be excellent and profitable investments, might be a better option for property investors who are willing to undertake a large venture.
Obtaining a large sum of capital in commercial real estate investing is much easier as there are many financing options to choose from. As a commercial real estate investor, not only do you have the ability to raise capital by using traditional financing options, but you can also use the help of hedge funds, investment groups, and private equity firms. Commercial property investors can also pool capital and have access to more financing to .
Other benefits include:
Commercial properties generally have an annual return off the purchase price between 6% and 12%, depending on the area, which is a much higher range than typically exists for single family home properties (1% to 4% at best).
Small business owners generally take pride in their businesses and want to protect their livelihood. Owners of commercial properties are usually not individuals, but LLCs, and operate the property as a business. As such, the landlord and tenant have more of a business-to-business customer relationship, which helps keep interactions professional and courteous
More objective price evaluations
It's often easier to evaluate the property prices of commercial property because you can request the current owner’s income statement and determine what the price should be based on that. If the seller is using a knowledgeable broker, the asking price should be set at a price where an investor can earn the area’s prevailing cap rate for the commercial property type they are looking at (retail, office, industrial, etc.). Residential properties are often subject to more emotional pricing.
Multiply current cash-flow through leverage
When investors place “positive leverage” on an asset, they effectively multiply their net spendable cash by borrowing money at a lower cost than their property returns back to them. A quick example: your friend loans you $10 and asks for $11 back, one dollar interest….you immediately loan that $10 to someone else and ask for $2 interest…paying back the $11 owed and making a profit with no additional investment…you just participated in positive leverage.
Triple net leases
There are variations to triple net leases, but the general concept is that you as the property owner do not have to pay any expenses on the property (as would be the case with residential real estate). The lessee handles all property expenses directly, including real estate taxes. The only expense you’ll have to pay is your mortgage. Companies like Walgreens, CVS, and Starbucks typically sign these types of leases, as they want to maintain a look and feel in keeping with their brand, so they manage those costs, and you as an investor get to have one of the lowest maintenance income producers for your money. Strip malls have a variety of net leases and triple nets are not usually done with smaller businesses, but these lease types are optimal and you can’t get them with residential properties.
Investing in commercial properties (like office buildings and shopping centers) is a huge undertaking. This is why so many property investors shy away from . In addition, there are a variety of commercial property types, such as industrial, retail, office, and apartments, and not to mention that within each property type there are also numerous sub-types to choose from. For an experienced property investor willing to take a risk, commercial real estate investing
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