Commercial property investment is often profitable and commercial real estate can hold value well. For entrepreneurs who wish to move into a new market or hope to get a return on their capital, there are many attractive opportunities.
However, “commercial property” covers many kinds of investments, and each has attractive traits and unavoidable drawbacks.
These can include multi-family complexes such as rentals, condominiums, and townhomes, subdivisions, mixed-use developments and mobile home or RV parks. These types of property can provide income, and once built if the investor holds the property it may require little in terms of ongoing maintenance. In many cases, developers build and sell. Investors in existing properties may be searching for rental income.
However, a residential landlord role requires the investor to contend with a variety of personalities. Tenants may not be as reliable as you would like. And, many restrictions exist making it potentially difficult to evict tenants who do not follow the rules or pay on time.
These properties include retail centers, shopping complexes and restaurants. Building or purchasing in this segment can provide income, but again the investor must consider dealing with the buyers or renters in this category. Business owners can drive a hard bargain and high profile commercial tenants may be drawn only to specific locations. A plus is that commercial tenants can generally be evicted more readily than residential ones, if the lease is properly drafted for the landlord.
For the investor, unless costs are passed through to the tenants maintenance costs and liabilities have the potential to be higher than with residential properties. There is potential for litigation if an invitee to the premises is injured, and tenants may expect maintenance to be more efficient than do residential renters.
These properties may be office buildings, industrial complexes, warehouses, and even agricultural land. If you develop or purchase a production-focused property, you may have many of the benefits of a commercial investment.
However, keeping in mind, with a warehouse, factory, or farmland, their productiveness is closely tied to the economy. If there is a dip in the economic outlook, then your properties may struggle.
Drawbacks exist in every property investment
Your investments will always have some downsides. However, with a thorough legal team, you can identify your risks and mitigate the struggles you face.