Merits and Demerits of Buying a Commercial Building
Many studies are revealing that the United States has more than 5.7 million commercial buildings. Furthermore, each year is recording a rapid increase of buildings. The fact that commercial property is a lucrative investment has made many business people consider making investments. But, as an investor you should beware that challenges are prone to come. Read on to understand the pros and cons of buying a commercial property.
It is vital to understand that regardless of the risks taken, commercial properties are far much better investments than residential properties. Moreover, you will stand a better chance of earning a significant ROI and also build equity. Research has it that once you purchase a commercial property, you can anticipate an annual return of around 10%. On the other hand, the profits from residential properties are 5% lesser.
The fact that commercial properties require the triple net lease is highly advantageous. In this case, it is the occupants’ responsibility to pay off all insurance, tax, and other additional costs. This leaves the mortgage as the expense to you as a buyer. For this reason, commercial properties are the best option of earning passive income.
Commercial properties give that assurance of maintained quality. Since most tenants are business owners, they acknowledge the fact that no consumers would like to approach an unclean place. As a result, your property will remain clean, maintained and functional. Also, you will spend less on cleaning and remodeling the spaces for a new tenant.
When it comes to commercial properties, commercial property brokers advise that the evaluation be done according to the income of the current owner. If the seller is using help from commercial property brokers; then they should ensure that the price is according to the prevailing capitalization rate in the area.
The following are some of the risks that you have to take when buying a commercial property. You need to understand that commercial properties fluctuate with the economy. As much as financial strains affect residential properties, the impact is much felt by commercial properties. In hard times, not all business will get through, but, people will still need houses. Many small business owners will even prefer to continue working from home. It is advantageous to prepare your property before a recession hits.
You should also know that older commercial properties face stiff competition from newer ones. If you have experienced commercial property brokers, they will inform you of how hard it is to convince tenants to check out older buildings. You should also know that upgrading a commercial property is an expensive project. When the number of new properties increases, there is a high likelihood that you will lose your occupants. Also, it takes so long to find tenants for a commercial property.