Many of us are accustomed to buying residential real estate properties, but investing in commercial real estate is actually the better way to gain higher return on investment. A great way to balance your portfolio as a real estate investor is investing on commercial real estate properties. All you need to do is research and know the rules and terms when it comes to commercial real estate investments. In this article, let us dig deeper on the differences between residential and commercial real estate properties.
Commercial real estate properties produce income differently because it is directly related to the usage square footage, which is not always the case for residential properties. Diversify the risk of real estate investments by investing on commercial properties. For instance, if you own an apartment complex and you lose two of your 20 tenants, then you only lose a portion of the income instead of the entire rent as you would lose in a single-family residence. Cash flow is higher owning a commercial real estate property because you have it leased or rented per square footage, and more tenants you have, the greater cash flow it is, generating more income than what you can get by owning a single family dwelling. Because commercial property leases are generally much longer than residential leases, this greatly helps with your cash flow’s stability. Banks and other financial institutions value commercial real estate properties differently, that’s why they require higher down payment than residential properties.
Before investing on a commercial property, it pays off doing your homework by finding out the vacancy rates of previous owners and talking to storefront managers to find out what they like and about their business. Are they still interested renewing their leases? What did they like about the previous management? Are the businesses booming? Are residential houses being built in the area? What are the characteristics of the population or demographic profile in the area? It is also a good idea asking for the cash flow of the sellers or tenants in the commercial property. It can be rewarding understanding the ins and outs of commercial real estate investing.
Do you have plans buying a commercial property this year? This must be the right time for you to consider investing in commercial real estate properties. Now more than ever, start considering owning a commercial property because there are a lot of benefits owning one. Feel free to check our homepage or website if you want to learn more about real estate investments. Embrace commercial property investments and become a successful real estate investor.