After reading this article, you will be well-acquainted with the norms and functions of the Commercial Real Estate. Also, you will find a complete guide to navigate you through the investment procedure so that you can finally make your decision on investing in commercial properties.
What do you understand by the term “Commercial” in the realty market?
To give you a basic understanding of the term commercial, we will describe it in simple terms as “something that is associated with commerce or business”. Whenever real estate is mentioned, people often have the notion of buying and selling or renting properties.
However, in the commercial zone, things are quite different from the notions one usually shares about the real estate market. This is because people tend to be associated with the residential units of the reality sector that they usually lack necessary details of the commercial market. Hence, we provide you with a complete diction of the commercial wing of the real estate sector.
Things to consider on buying a Commercial Real Estate Property
Nowadays, people are so used to the internet that even before buying a simple product like food or clothing, they always check their vitality on the internet. Therefore, why not follow the trend and use this guide before making a huge investment, i.e. buying commercial land for business. The following points mentioned below are important for your user manual into buying a real estate property in the commercial sector.
- Type of property: Firstly, you have to decide whether you want to own a commercial land where you will build your own Commercial office space or a readymade commercial building where you will attract industrialists and retailers to rent a space in your property. Secondly, note that commercial properties like factories or warehouses can sometimes lack liquidity since the vacancy is not easily fulfilled like the ones in residential units.
- Location of the property: You must pick a favourable location for erecting your commercial building. The location should possess good transportation facilities and well-built infrastructure. Also, make sure that the location is a popular hub for trade and commerce. This will cater to enhance the demand for your property since more and more businessmen will be interested in renting a space to attract consumers.
- Size of the property: Based on your investment horizon and the goals you plan to achieve shortly; you should consider the size or space of the property as well. A bigger space will attract more investors in your property as well as it will give you plentitude in options for renting out your property. However, also consider buying smaller units in the initial stage as it is likely to be more liquid than bigger Commercial Rentals.
- Legal documents: Whether you are buying a piece of land or a pre-built building, it is important that you carefully take heed of all the legal procedures and follow up with the Commercial Real Estate Agent on the transfer of documents leading to the ownership of the property.
- Scope for growth: Also consider making a rough estimate on how effective it would be in investing in a particular property. Pre-leased assets often give an upper hand in earning quick revenue. However, when you start from scratch, you have to be patient enough to wait for your returns to flow.
- Current economic situation: One of the most crucial factors to check for is the functionality of the economy when you are planning to invest in a property. When the economy is witnessing prosperity, your business is more likely to gain better returns whereas, during inflation or downfall of the economy, your investment in the sector might not yield desired results.
Benefits and Drawbacks of Commercial Properties
Commercial housing comes with many benefits and drawbacks. A list is jotted down below.
Benefits:
- Promises greater and consistent returns once the business grows.
- Both retailers and industrialists rent these properties for housing their business, hence raising the standard of your property.
- Owners of commercial properties are free from the expenditures made in furnishing or repairing the property as the tenants themselves take care of it.
- Also, payments of taxes duty are levied on the firms that have rented a space in the commercial building.
- Commercial properties yield profitable rentals of 10% and sometimes, proper location and premium surrounding bring about returns worth 13% to 15% which are quite higher than the profits earned through residential units.
Drawbacks:
- Even though investments made in Commercial Real Estate promises greater cash flow, it is more costly than residential units.
- Loans that are taken for investing in the Commercial Market often comes with a greater rate of interest than those in the residential ones.
- Sometimes, properties become difficult to rent as occupants for commercial properties are difficult to get hold of.
- Investors in the Commercial Sector often face a setback due to the economic performance of the state or region.
- The process of buying and selling is a complex structure thereby being a time-consuming procedure as well as requires heavy expenditure.
FAQs
Q1. What is the lease structure of commercial properties?
Ans. Commercial lease structure comes in an agreement for 9 or 15 years with a tenant. There are appreciations every 3 years or 5 years. However, the tenant can vacate at any time provided they notify the owner.
Q2. Can you rely on short-term security deposits from tenants at the commercial property?
Ans. Security deposits made by the tenants to rent a property in a commercial building must be for at least 10 to 12 months. This will help you prevent unnecessary issues in cash flow and also avoid tenants with short-term goals.
