Member of the Deerfield Beach Real Estate Investments Club
Are you seeking financial freedom through investing? Well, just improve your cash flow. Let us look at commercial real estate property, and the advantages as well as the disadvantages of investing in a commercial building.
There is no doubt that every real estate investor’s long-term vision is financial freedom. Unfortunately, not all investors will achieve it, especially those who own residential property as opposed to commercial ones.
So, how do you increase cash flow when investing? The answer is simple; select a real estate investment with higher returns. That is, without doubt, a commercial real estate investment.
Commercial property investing has less risk compared to residential real estate .
Other pros of this type of investing include the following:
1. Higher Cash Flow
If you look at the annual rental income from a residential investment vs a commercial one, the latter can potentially be twice as much as the former.
2. Invest with Less Money
It is hard to acquire a decent residential investment property with less money. With commercial investments, you can get a good deal with a smaller down payment. We are talking about commercial real estate such as car lots, small office spaces, or storage sheds.
3. Low Maintenance Costs and Other Charges
With commercial properties, tenants are responsible for the majority of the costs that come with the existence of the buildings they occupy. These include maintenance costs, water rates, council rates, and body corporate fees. As the property owner, you have the right to ‘quiet enjoyment’ when owning this type of investment.
4. Long Term Leases
Another important advantage of a commercial property investment is long-term leases. A commercial lease can easily span over a five-year term with possibility for several term extensions.
Commercial Property Investing Cons
1. Knowledge of Running a Business
Commercial property investing requires business discernment. Commercial real estate property owners should be able to make assess their potential tenants and determine their ability to pay rent. Do not forget that, if a tenant is unable to pay rent, it could take months to vacate them from the property and find a new tenant. In such a scenario, a landlord could easily run into serious cash flow problems.
2. A Commercial Property Might Be More Difficult to Resell
A commercial property owner may decide to sell his/her property due to a number of reasons, one of the most important reasons being a low ROI. Commercial properties can be easy to buy, but hard to sell.
3. Low Demand from Potential Tenants and Buyers
Commercial properties are not as high in demand as their residential counterparts. Residential properties are in a higher demand because people always need somewhere to live. But not everyone would like to do business, would you? That explains why commercial properties are not that high in demand.
4. Volatility in Property Values
The value of commercial properties largely depends on the lease on the property. If the lease is about to expire, or the property becomes vacant, following the expiry of the lease, the value of the property would be expected to fall.
5. Lots of Unforeseen Risk Factors
With commercial investing, there are lots of unforeseen risks. Tenants could possibly be no longer able to pay their rent due to cash flow problems occasioned by many factors. These include difficult economic times, political turmoil, failing businesses and so on. Therefore, it is always wise for a commercial property owner to have at least 12 months of liquid loan repayments ready for the unforeseen.
Would you like to increase your commercial property ROI? Well, make sure you take certain calculated risks. Most importantly, ensure you understand what you are doing. If you do not understand, be sure to hire someone who understands commercial real estate investing to help you.
Are you Interested to learn more about Real Estate investing? Contact me today and get Started asap!!
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