3 Reasons Why Owning a Commercial Property May Make You More Money in Real Estate
Investment
By Joel Teo
If you ever have been a landlord for residential property, I am sure that you get
complaints from tenants about leaking roofs in the middle of the night. But what
keeps most people back from investing in commercial real estate is the fear of the
unknown since not many of us are born commercial landlords.
However we can learn from Donald Trump who spent his energy developing large office
complexes and that’s where he made his money.
This article will highlight three reasons why commercial property real estate investment
is better than private real estate investment.
Reason #1:
Rental Yields may be better for commercial properties For commercial property like
shop space, the rental yield that you can command depends directly on the human
traffic in the area. Thus if you invested money in such a property investment, the
monthly cash flow would be more than an equivalent costing residential property
investment in the same area.
In addition, most business owners when they come to view your property have already
identified your street as a good one for their business in terms of human traffic
and usually want to start renting from you, thus you have the upper hand in negotiations.
Contrast this to most residential tenants who have a huge variety of properties
to choose in your vicinity and if they do not like your property or your rental
they can just as easily go to another property.
Reason #2:
Improvements on the property Business tenants generally treat properties different
from residential tenants. A business owner who is renting property would generally
fix small defects in the property so that he can carry on business and would not
bother the landlord about such small problems. But additionally, most small business
owners would generally carry out small improvements in the property that could boost
the property value of your commercial property.
An example of this could be the installation of a PABX System and wiring up the
whole office for a local area network. This could save your new tenant a lot of
time and could be used to give additional value to the terms of the rental that
you are providing.
Another example I heard recently involves office partitions. Law firms and accountants
generally have the same set up in their offices and when law firms move, they generally
would have to spend money renovating so if you have existing partitions in your
commercial property, you might be able to get a whole professional firm over to
rent your property. Note in contrast, in most residential property, tenants tend
to love to puncture holes in walls without permission, repaint certain rooms and
at the end of the lease and as a result most landlords have to do lots of repairs
just to return the property into its original condition.
Reason#3: Rental Collection
Typically there are some tenants that are not very prompt with their rental payments
and therefore the ability to choose tenants who would pay would save you lots of
money and make you even more in the longer term. Imagine having to loose a few months
of rental payment and spend money on lawyers to evict the defaulting tenant from
your property.
If you have a commercial property, you can choose a tenant that has lots of goodwill
established in your premises. This would mean that the tenant has a lot vested in
your property and would therefore pay his rent on time to stay out of rental disputes.
Contrast this with a residential property where the tenant can run away without
paying your monthly rental and has nothing very much to loose. Collecting rental
from residential tenants seems to be more difficult as well for some strange reason.
In conclusion, this article has highlighted three reasons why commercial property
real estate investment may be better than private real estate investment. That said,
making money with real estate is like value investing in stocks, the profit is made
in the buying. The time spent looking for a good property will reap its rewards
later in the form of good rental yield and capital appreciation over time. Take
massive action today and look for the real estate investment property that you think
meets your real estate investment needs.
Joel Teo takes a keen interest in real estate investment as part of a larger investment
portfolio.
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