Pros and Cons of Investing in Commercial Property

Commercial property is any retail buildings, office buildings, warehouses, apartment buildings, mixed-use or multifamily buildings or industrial buildings that are used for commercial purposes or to gain a profit. If you’re considering investing in commercial property there are pros and cons to doing so. Here are some pros and cons of investing in commercial property.

Pros

Income potential.

Obviously, the point of buying a commercial property is income potential. You’re looking to make money, make a profit, and build out a real estate portfolio. Many commercial properties can have an annual return of the purchase price between 6% and 12% and depending on the area and the demand could be much higher.

Triple net leases.

This is designed so that the property owner does not have to pay any expenses on the property as you would with a residential property. The leasee handles all property expenses directly including real estate taxes. The only expense of the property owner has to pay is the mortgage if the property was financed. By doing so, you can have one of the lowest maintenance income producers for your money. These are typically designed to be larger businesses such as Starbucks, Rite Aid, or Walgreens, for example.

Flexibility.

There are fewer consumer protection laws for commercial leases residential real estate can have a lot of rules and laws that govern them but commercial leases are a little bit less rigid.

Limited hours of operation.

Investing commercial property means that you’re probably only needed when the business is open and most businesses close during the night. This means that you shouldn’t be getting any emergency calls or receiving a call at midnight because a tenant wants repairs or has lost a key. You may also have an alarm monitoring service to put your mind at ease.

Related: How to turn your house into a rental property

Cons

Time commitment.

There may be more required of you than with single residential property investment. You simply can’t be an absentee landlord in order to maximize the return on your investment. You will be dealing with multiple leases, maintenance issues, public safety concerns, and in general, have more to manage, which may or may not be a good or bad thing.

Bigger initial investment.

Chances are you’ll have to come up with a bigger down payment and more capital upfront then when you acquire a residential property in the same area and for the same reason. Once you’ve acquired a commercial property you can get large capital expenditures to follow. So not only is your investment upfront a little bit higher, but any major repairs may cost more in general.

Higher risks.

Larger properties naturally come with higher risk. Properties intended for commercial use have more public visitors and with more people come more variables, factors, and risks. This may or may not be an issue but it is something to consider. [Source]

If you’re looking for the ideal commercial property or investment opportunity in Snohomish County and surrounding counties, give me a call. Let’s talk about what it is you’re looking for, how I can help meet those needs and have your money working for you right off the bat.

 

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