Many of us are accustomed to buying residential real estate properties, but investing in commercial real estate is actually the better way to gain higher return on investment. Even if you already have residential estate investments, having commercial properties can help in balancing your portfolio. Get ready for a primer by knowing all the rules and terms when it comes to commercial real estate investments. In this article, let us dig deeper on the differences between residential and commercial real estate properties.
The income you can obtain from commercial real estate properties is different from residential properties because it is directly related to the usage square footage, which is not always the case for residential properties. Commercial real estate properties can help in diversifying the risks. For example, if you have an apartment building and you lose three of your 15 tenants, then you only lose a portion of the income instead of losing the entire rent as you would in a single-family residence. There is a greater cash flow owning a commercial real estate property because you lease per square foot and so you generate more income than what you can get by owning a single family dwelling. Because commercial property leases are generally much longer than residential leases, this greatly helps with your cash flow’s stability. Banks and other financial institutions value commercial real estate properties differently, that’s why they require higher down payment than residential properties.
Before investing on a commercial property, it pays off doing your homework by finding out the vacancy rates of previous owners and talking to storefront managers to find out what they like and about their business. Are they still interested renewing their leases? What are the things they like about the previous management? What is the success rate of each tenant? Are houses being built surrounding the commercial property? What are the characteristics of the general population or demographic profile surrounding the commercial property? It is also a good idea asking for the cash flow of the sellers or tenants in the commercial property. Don’t be afraid to invest and research on commercial real estate properties, because it is really rewarding understanding the ins and outs of commercial real estate investments.
Are you considering investing in a commercial property today? You might consider investing in your own commercial real estate property to balance your portfolio. Now more than ever, start considering owning a commercial property because there are a lot of benefits owning one. Allow us to help you learn more about real estate investing by visiting our website or homepage now. Embrace commercial property investments and become a successful real estate investor.