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When You Look To Invest in Commercial Real Estate Look For Property That Has Enduring Value

Updated on June 8, 2012

Advantages in Commercial Property Investment

Commercial property investment offers a lot of advantages that may not be apparent in residential investment. Most commercial property is taken up for lease by businesses that are likely to be around for a long time. So they do not mind going in for long lease contracts which as an investor can be very suitable for you. You do not have to worry about looking for new tenants periodically, nor do you have to worry too much about defaults as businesses are less likely to delay payments as this can affect their business; something they are wary of doing.

Most commercial property, especially if it is situated in a known commercial area will have an enduring value that can appreciate as the need for it increases. Normally businesses tend to look after the maintenance of a rented property themselves without waiting for the landlord, as quite often this can affect their business and customers if premises are not properly looked after.

The income yield from commercial properties is much higher than for residential properties, though residential properties tend to gain more in property value. Income from commercial property tends to be steady and will normally see only a nominal rise, quite often written into long term lease arrangements.

Larger Investments Require Greater Care

Investing in commercial property requires a far larger amount of investment than that required for residential properties. This is because the amount of space that most businesses require can be quite large if they are to start, run and expand a business. So any business will tend to look at properties from this angle and will be reluctant to move as this can not only be time consuming and costly but can also disrupt business and therefore any cash flow. Small investors will therefore find it difficult to invest in commercial property unless they do so through a REIT or real estate investment trust that gathers small shares from various investors to make a big enough fund that can easily take up large investments. This is like buying shares into company, but the combined strength of such funds allow them to become large investors, who find it fairly easy to invest in commercial properties.

There are risks in investing in commercial property that the investor should be aware of before putting in money. Commercial property is not very liquid and cannot be immediately converted to cash if the need arises. Commercial property markets are also prone to market cycles that can affect rental rates and thus return on investment.

If you are looking for enduring value in the commercial property that you are buying for investment, you need to be very careful in the location of the property. This needs to be in an area that is very conducive to business by having the right access to transport, good communication and situated and in places that customers to a business will find it easy to come to. The type of building should also one that suits commercial activity, with sufficient storage and other spaces necessary for business. It can do no harm to put in facilities that businesses look for if you want to attract the right sort of tenants.

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