Over the years, the commercial real estate sector has experienced remarkable growth. While some attribute this success to initiatives such as Smart Cities, others believe that the increasing demand for office space in the ITeS/IT sectors has fueled this growth. According to data released by the India Brand Equity Foundation, absorption in Grade-A office spaces is projected to exceed 700 msf by 2022, indicating that commercial property investment holds promise in the coming years.
Despite numerous reasons to invest in commercial properties, there are inherent risks that require careful evaluation. In this blog, we will delve into the pros and cons of this type of real estate investment and share tips on avoiding common pitfalls.
Defining Commercial Properties:
Commercial Real Estate Search refer to immovable assets used for investment or rental Despite numerous reasons to invest in commercial properties, there are inherent risks that require careful evaluation. In this blog, we will delve into the pros and cons of this type of real estate investment and share tips on avoiding common pitfalls.
Types of Commercial Properties:
Before examining the pros and cons of commercial property investment, let's briefly explore the types of commercial spaces:
- Office Spaces
- Industrial Units
- Shopping Complexes
- Retail Outlets
- Warehouses and Factories
- Hotels and Restaurants
- Mixed-use Lands (Residential and Commercial Spaces)
- Healthcare Infrastructure (Hospitals, Nursing Homes, Medical Centres, etc.)
Is Investing in Commercial Property a Wise Decision?
Investing in Industrial Property For Sale can prove advantageous in the long term, with both generating steady incomes (if residential properties are rented). However, commercial properties provide better financial incentives.
Some advantages include:
Stable and High Income Source: Commercial lease agreements are long-term, ensuring a regular income flow with annual increases, resulting in a high and consistent return.
Lower Furnishing Expenses: Offering raw and unfurnished units to tenants makes commercial property investment less costly compared to residential properties that require substantial furnishing expenses.
Industrial Property For Sale Arizona
Good Rental Yield: Commercial Real Estate Search offer a high rental yield, typically ranging from 6-8% of the property value, depending on factors such as unit type and location.
Easy Management: Dealing with professional entities like banks and IT companies as tenants makes the management of commercial properties relatively straightforward.
Value Appreciation: Properties in premium locations with new developments, such as infrastructure projects, are likely to appreciate in value, adding to the financial benefits of commercial property investment.
Net Lease Options: Commercial property owners can opt for single-, double-, or triple-net lease agreements, providing flexibility in accruing operational or maintenance costs from tenants. The triple-net lease (NNN) is particularly beneficial for landlords as tenants bear the majority of expenses.
What to look for before investing in Commercial property?
Total Rental Income
While grasping the dynamics of the market is crucial, it is equally important to compute rental earnings post-tax or insurance deductions. This analysis provides a concise overview of the prospective returns from your commercial property investment, revealing whether ample financial reserves will be available for unforeseen circumstances.
Tenant Reliability
Scrutinizing a tenant's reliability is as vital as assessing the quality of a building. Reputable organizations or corporations tend to handle business transactions professionally, reducing the likelihood of rent-related complications. Conversely, with lesser-known tenants, it is prudent to verify their credibility. One effective method is through security deposits, where tenants typically submit 10-12 months' worth of rent. If a tenant insists on paying only 6-7 months in advance, it may signal potential cash flow issues.
Seek Professional Guidance
Before finalizing a commercial property acquisition, it is advisable to seek assistance from professionals such as lawyers, chartered accountants, tax experts, and real estate consultants. Their expertise can provide valuable insights into various legal and regulatory aspects, enhancing your understanding of the investment landscape.
Author’s Bio
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