Benefits and Challenges of Investing in Commercial Real Estate

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Benefits and Challenges of Investing in Commercial Real Estate

Commercial property can be buildings dedicated to office, retail, warehouse, apartment, or industrial purposes. There are also mixed-use buildings where there are different uses occurring in one building. An example of this is a building that has retail on the bottom floors and apartments on the top floors. Some buildings also offer office units in addition to the apartments.

There are many reasons to invest in a property fund. This is an investment in the commercial property specified above. You will be able to combine the value of your capital with what other investors contribute to the fund. This way, individually, a smaller quantity of funds is invested by each but collectively you will be able to enjoy the benefits of a much larger scale investment. This is beneficial when you don’t have the capital to invest solely on a larger investment.

There will be an investment manager who will be able to oversee the find. Any property is a good investment and you will be able to have a larger financial reward when compared to residential property. However, you will have more risks in this venture as well. You will also be able to cultivate more professional relationships if you are investing as a group in a fund. Generally, commercial property investments are operated by limited liability companies.

Commercial properties are also maintained well. When it comes to retail tenants, they will maintain the store impeccably as it has an effect on their business. This is something that an investor can benefit from as well because the commercial building will be in good repair. The quality of the property will be maintained at a higher standard and therefore the investment will retain its value. You are able to evaluate the price of commercial properties more objectively as you have access to more information.

You can simply request financial details of the owner such as the income statement in order to come up with a price. There is no emotion involved the way it is in residential property. There are not many consumer protection laws regarding commercial leases. More state laws are applicable for residential real estate. So there is larger flexibility in the lease terms of commercial real estate.

There are also certain drawbacks of investing in commercial real estate. There’s a larger managerial component that needs to be done for a commercial investment as there are more tenants. You need to be attentive to the property in order to increase the investment returns. You will be dealing with many leases and there will be more maintenance issues as well when it comes to larger commercial property.

You will need to have professional help when managing the maintenance of the property. So you need to account for the maintenance expenses as well. You will need to put down more capital in the initial stages when compared to a residential rental. There are also larger expenditures in the beginning as well because of the larger number of facilities that need to be maintained.

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