There are numerous ways to get involved in commercial real estate. Retail space, office complexes, warehouses, and industrial plants–you name it, and there is a way to to invest in it. But is investing in commercial real estate right for you? In this article, we will break down some of the pros and cons of purchasing a commercial property to help you make the most informed decision possible!
The Pros and Cons of Investing in Commercial Real Estate: Is It Right for You?
Pro: Incredible Income Potential
Everyone is familiar with the pervading sentiment that investment in real estate is the best way to build wealth over time.
In this regard, there is no niche quite like commercial real estate for generating a consistent income stream.
As commercial properties will receive rents from multiple tenants simultaneously, owners can expect to see a 6-12% annual yield on the purchase price. This dwarfs the 1-4% standard for renting private residences. As many commercial properties sell for seven figures (or more), this is quite the appealing proposition in terms of ROI.
Con: Balancing the Needs of Multiple Tenants
There is always a flip side to every coin in life.
While receiving rental income from multiple tenants is undoubtedly exciting, keeping up with the needs of multiple tenants can cause you to work long hours.
Tenants can be notoriously fastidious–as they should be given current commercial rent prices.
And since inoperable bathrooms or faulty HVAC not only affects their comfort but bottom line, as well, then you can expect to be receiving phone calls the second any type of issue arises.
The chances of these calls occurring will multiply many times over depending on the number of tenants currently occupying your building.
Pro: Professional Relationships
One of the more unsavory aspects of being a landlord is the need to be–ahem–a “jerk” from time to time.
Even the most cold-blooded businessperson doesn’t like having to knock on a family’s door and tell them they have to move out.
While evictions and other types of notices are by no means fun in commercial properties, they are a little easier to stomach than for private homes.
The commercial tenant/landlord relationship is a professional one, with both sides understanding that they are using each other to achieve a business end.
So when those unpleasant conversations inevitably arise from time to time, it is usually behind the front of LLC talking to LLC and not a tyrant landlord coming down on a poor family struggling to make rent.
Con: Meticulous Attention to Maintenance
As commercial tenants are using your property to turn a profit, little details matter. A cracked window or damaged siding can’t wait until later. Each precious second could mean the difference between gaining or losing a customer.
Therefore, commercial landlords have to be one step ahead of maintenance at all times. When possible, invest more in high-quality materials that will lower maintenance attention over time. Research metal deck cost and explore the ways it can extend the life of your flat roof. Consider upgrading to hurricane-grade storm windows to prevent damage from wind and projectile impact.
Pro: Your Property Is In the Public Eye
Another downside to being a landlord for single-family homes is that your tenants will never have as much pride in the property as you do as the owner. Horror stories abound of the cleanup and repair necessary after tenants have trashed their rental homes.
However, this is typically not a concern when renting out commercial properties.
As commercial tenants are public-facing entities, they are just as motivated as you to keep the property in pristine condition. Failure to do so will undermine their profits.
Con: Additional Legal Considerations
There are various ways to set up commercial leases to absolve yourself of as much liability as possible.
However, anytime a patron slips, falls, and gets rushed to the hospital from a building that you own, you are certain to start shuffling through your paperwork to see if you will be liable in the event of a lawsuit.
Therefore, it is critical to be proactive in your safety and security features to limit your risk as much as possible. Modern smoke baffles and fire screens, a glass railing system around all stairwells and elevated walkways, and an infrastructure of safety doors and credentialed access are just a few ideas for keeping your building as safe as possible.
Pro: Limited Hours of Operation
Although addressing the needs of multiple tenants can be time-consuming and stressful, there is the benefit of limited work hours.
If the heat goes out in a single-family home in the middle of the night, you are sure to get a call and be expected to find a solution, regardless of the hour.
On the other hand, most commercial tenants are only in their spaces during normal working hours, giving you a bit of flexibility.
If you need to apply crystalline waterproofing to concrete surfaces or shore up a leak in the plumbing, the evening and weekend hours present a nice opportunity not present in residences that need attention ASAP.
Con: Evolving Government Regulations
It is fairly common knowledge that the United States government is eyeing a net-zero economy by the year 2050. Failure to provide a sustainable solution for modern businesses can not only negatively impact your occupancy rate, but possibly subject you to emerging fines and sanctions.
Therefore, it is best to stay ahead of this trend and make your commercial building as energy efficient as possible upon investment. Look into PV technology, the best insulation for exterior walls, motion-detected lights, and low-flow plumbing fixtures as ways to make your commercial space as eco-friendly as possible.
Is Commercial Real Estate Right For You? Make the Choice Today
If you are willing to put in the work and have an eye for attention to detail, investing in a commercial property can be a great way to leverage the investment benefits of the real estate market. If you are considering a commercial property as an investment opportunity, check out Mobiliti Commercial Real Estate for the latest news and industry insights!
Sam Willis is a freelance writer that loves sharing his knowledge and expertise on commercial real estate. He lives in Atlanta, Georgia where he enjoys spending time with his wife and researching real estate trends in his free time. Sam’s work as a freelance writer can be found on Building Product Advisor, a new construction industry resource site.
At Mobiliti CRE we focus 100% on representing tenants with relocations, expansions, contractions, and subleases throughout Tampa Bay and the entire West Coast of Florida. We also assist businesses that are looking to purchase office, medical office, flex and industrial Reach out to us for assistance with all of your commercial real estate needs at (813)-300-2227 or email us at firstname.lastname@example.org