Merits and Demerits of Buying a Commercial Building
According to research, the United States has over 5.7 million commercial buildings. Furthermore, the number of buildings keeps increasing annually. The fact that commercial property is a lucrative investment has made many business people consider making investments. Regardless of its lucrative nature, it is essential to acknowledge that there are some risks you will have to face. In this article, you will be able to understand both sides of investing in a commercial property.
It is vital to understand that regardless of the risks taken, commercial properties are far much better investments than residential properties. Also, you increase your chances of earning ROI and build equity. Studies show that investors in retail properties are prone to receive a yearly profit of approximately 10%. It is vital to know that this is 5% more than what is received from the residential properties.
The fact that commercial properties require the triple net lease is highly advantageous. This type of contract expects the tenants to pay for the protection, fees, maintenance, and other ongoing expenses. As an owner, the mortgage is the only expense that you will have to incur. For this reason, commercial properties are the best option of earning passive income.
Commercial properties give that assurance of maintained quality. Since most tenants are business owners, they acknowledge the fact that no consumers would like to approach an unclean place. This means that your property will stay functional and in good condition. In case you have a new occupant, you will not have to worry about huge cleaning and maintenance costs.
According to commercial property brokers, the price of a property should relate to the much that the current owner gets. On the seller side, the commercial property brokers should tag the price according to the capitalization rate in the area.
The following are some of the risks that you have to take when buying a commercial property. You need to know that changes in the economy affect commercial properties. Commercial properties are significantly affected, more than residential properties, if the economic conditions are severe. In hard times, not all business will get through, but, people will still need houses. Many will consider transforming a section of their homes into offices. Rather than waiting for depression, you should consider to prepare your property.
It is necessary to acknowledge that more modern features are a threat to older ones. If you are getting help from commercial property brokers, they will advise you to go for a modern building since it is easier to get tenants. It is too costly to do renovations in a retail space. You should also know that there is a high probability of losing tenants to new buildings. Also, it takes so long to find tenants for a commercial property.