A lot has been written about residential property investments but the areas of commercial real estate investments are not very familiar with most of us. A large number of investors are more at ease with investing in residential property as they are familiar and comfortable with it. Commercial property, on the other hand, is not as well known. If you do not deal with the day-to-day matters of running a business from a commercial building, which most people are unfamiliar, specially the terms and conditions of commercial leases and the tax implications. I am writing this article to provide readers with a brief and short knowledge of commercial property investment and their advantages.
Commercial property is office spaces, retail units, and industrial factory sites, warehouses and manufacturing industrial sheds. The investment procedure and returns are quite different to the conventional residential.
Return & Risks
The risks low and also the returns are also low in the residential property; however the commercial property has a higher return with a higher risk. In India the commercial and industrial market vary from place to place, but if one takes an overall analysis of commercials returns compared to residential returns, the difference is strikingly poles apart. Leasing out a commercial property compared to a residential is different, a commercial space may take some time to be leased out, however a residential just may take a few days or a weak to be leased out. commercial properties
Residential leases tend to be for six or 12 months, which is a shorter period. However, a commercial property is leases out for a longer period of time may be about six to ten years with an escalation of rentals ranging from 15 to 20% annually. It is not uncommon to have leases that are for an initial five-year period, with the option to
renew for another five years.
Quality of tenant
The tenant is obviously a crucial and important part of your property. In commercial property, a large corporate tenant occupier is considered a ‘blue chip’ tenant. They are likely to rent your property for a long period of time and are unlikely to default on the rent.
Buying commercial property is often much more expensive than buying residential property. Office or retail space is generally the most expensive space, due to its location and the class it commands. Industrial property on the outskirts of the city can also be expensive due to size of the property being purchased. Costs, however, can minimised by purchasing smaller premises.
A commercial or a residential property has an operational cost involved when still pending to be leased out; the cost differs depending on the type of property one has invested.
Benefits of a commercial investment:
One of the main advantages of being an owner of commercial property is that once you have a potential blue chip corporate as a tenant you have the benefit to flip your property with a larger margin, where you would find ready buyer offering you the rich premiums, your pockets swell bigger and bigger, even though you have been milking the cow for over so many years. This is not the case in residential investments.