According to JPMorgan, the commercial real estate (CRE) market will enjoy a bounce-back in 2022 after facing setbacks caused by Covid 19 in 2020 and 2021. Real estate, particularly CREs, has bounced chiefly back after hard economic times, making it a promising avenue for anyone looking to start over or reinvest. So, if you are looking for ideas on how to invest 500k, you should consider investing in the commercial real estate market.
However, before purchasing a commercial property, you should learn more about the pros and cons of investing in the CRE market. Armed with this information, you’ll be able to make a more informed decision on what to invest in. Moreover, using authentic softwares such as multifamily leasing software, you can seamlessly market, manage and lease your portfolio.
The Positives Of Investing In Commercial Real Estate
Investing in commercial property has several upsides compared to residential property. Below are some of these positives.
- Higher Income Potential
You’re investing to make money. And there’s no better investment than one with a high ROI(Return On Investment). Generally, commercial properties charge higher rent prices compared to residential properties. And some commercial properties have multiple tenants, which significantly increases the rent.
- Professional Relationships With Tenants
Tenants in commercial properties are primarily business owners. These business owners have leased retail spaces from you to operate their businesses. Therefore, they’ll do everything in their power to protect their livelihood.
Hence, the relationship between you and your tenants will be more business-to-business. And due to this dynamic between you two, your relations will remain professional.
- Property Will Be In The Public Eye
Most of your tenants will be business owners, and they’ll have the extra incentive to maintain your property correctly. And that’s because it’s a known fact that the outlook of a storefront directly influences the number of customers walking into the store.
And when your commercial property is well maintained, its overall value will also increase.
- Decreased Expenses Due To Triple Net Leases
When you lease out your commercial property using triple net leases, it means that your tenant will be responsible for handling all the expenses associated with your property. These expenses include passive real estate investing and maintenance costs.
With your tenant handling all of the expenses associated with your commercial property, your profits from the rent income will always remain high.
- Longer Leases
Commercial properties attract longer leases lasting between 5 to 10 years. And as a result, they don’t experience a high turnover rate compared to residential properties. Therefore, if you manage to secure reliable and stable tenants, you’ll have secured a steady income stream that will last you for years.
The Cons Of Investing In Commercial Real Estate
Since we’ve looked at some of the pros of investing in commercial real estate, we are now going to have a look at the cons of Commercial Real Estate, which are as follows:
A Large Amount Of Upfront Capital Is Required
Purchasing a commercial property requires you to provide a sizable down payment compared to residential properties. On top of that, the funding your bank will give you will be around 60%-70%. Therefore, you will have to pay a deposit of about 30%-40% of the property’s value.
- Professional Help Is Required
Unless you’re planning to manage your commercial property alone, it’s more likely you’ll hire professional help. Commercial properties require a lot of maintenance. Emergencies and repair requests will also emerge. And if you’re a busy person, handling these issues will be impossible.
You’ll have to hire a property management company to help manage your investment. And hiring a property management company will result in added costs that will take away part of your rental income.
- Vulnerability To Economic Shock
Commercial properties are more vulnerable to economic changes compared to residential properties. For example, the recent Covid 19 pandemic saw the commercial real estate market experience some tough times.
During economic hardships such as the Covid 19 pandemic, the demand for commercial property decreases. And since the economic hardships impact everyone, some tenants are usually forced to downgrade to smaller premises. And this leads to enormous losses for property owners.
- More Risks
Commercial properties attract a lot of risks. Due to the significant foot traffic in most commercial properties, there is a higher risk for damage and vandalism. On top of that, there is the possibility that accidents might happen, which increases the likelihood of facing several personal injury claims.
Investing in the commercial real estate market can be overwhelming, especially for newbies without the necessary knowledge or expertise. Therefore, if you’re not interested in investing in commercial real estate directly, you can invest indirectly via private REIT companies investing in CRE. However, whatever decision you make, seek out the advice of an expert to guide you through the investment process.