Buying Commercial

A commercial redeveloper can also take advantage of the following benefits:

    • Higher Income: The hallmark benefit of investing in commercial real estate is a higher potential income. Generally speaking, commercial properties have a better return on investment, an average of six to twelve percent, while single-family properties fetch between one and four percent. Secondly, commercial real estate provides a lower vacancy risk, as properties tend to have more available units. (Consider this: one vacancy in an office building with 25 commercial spaces will negatively impact an investor’s bottom line more than one vacancy in a residential duplex.) In addition, commercial leases are generally longer than those you will find in residential real estate. This means that, commercial real estate owners have to deal with far less tenant turnover.
    • Cash Flow: Commercial real estate has one very distinct advantage: a relatively consistent stream of income due to longer lease periods. In addition, commercial properties often have more units than residential properties, which means you can achieve economies of scale and multiply your income streams much more quickly. Known in the industry as a triple net lease, many commercial tenants also pay the building’s real estate taxes, property insurance and maintenance costs, thus increasing your owner benefits.
    • Less Competition: Another advantage associated with commercial real estate is relatively less competition. Because of the perceived difficulty of commercial investing, the commercial space tends to be less saturated with other investors.
    • Longer Leases: Perhaps one of the biggest perks of commercial real estate is the attractive leasing contracts. Commercial buildings generally have longer lease agreements with tenants compared to residential properties, which, as previously stated, offers investors impressive returns and significant monthly cash flow. In many cases, lease agreements for commercial properties are signed for multiple years.

Commercial real estate investing offers investors an array of opportunities and advantages that other investment strategies do not. Once the benefits of commercial real estate investing are recognized, the next step is dive in. Read the following to receive tips on how to get started in commercial real estate.

The Big Question: Commercial or Residential?

This is an excellent question, especially given that most investors have some experience with residential real estate from purchasing their own home.
There are certainly some similarities between Commercial real estate and residential: both are hard assets can provide income from rents and leases in addition to appreciation. But Commercial real estate, as noted above does offer some unique benefits that can play an important role in a diversified portfolio.
Besides the larger valuations usually seen with commercial properties, the biggest differentiator between residential and commercial is the diversification of income streams inherent in most commercial properties.
With residential properties, investors are often dependent on a single tenant, which presents them with increased risk.
Commercial properties generally have multiple tenants—sometimes hundreds—that help mitigate the risk of defaulting or otherwise non-paying single tenants. With residential properties, though, investors are often dependent on a single tenant, which presents investors with increased risk.