We all know that building wealth is easier said than done. There are many different areas in which you can build wealth and one of those is commercial real estate. However, commercial real estate requires a lot of money at the start before you can start to see results. You will need to put a deposit down on the property before you can begin and as we know, a deposit on property is a costly undertaking.
Investing in residential real estate is much more affordable than commercial. However, if you want to go one step further, the best way to do that would be to invest in commercial properties. If you are eyeing up the idea of investing in commercial real estate but don’t truly understand it then you have come to the right place.
Why Should Someone Invest in Commercial Real Estate
Investing in commercial property is a great way to build wealth but there are many other positives with this investment idea. Let us take a look at some of those.
High Returns
One of the main reasons why people invest in commercial real estate is because of the high returns, especially for those who are investing in the long term. One of the main reasons why it offers high returns is because you are renting it out to multiple tenants. Additionally, due to the long lease terms, the property is more likely to increase in value over time, while people are paying the rent to your building.
If a building is a city centre or an up-and-coming area, tenants will likely pay more money for it. For example, if you have a property in the city centre, you can expect the returns to be much higher in comparison to a small town.
Sticking with this type of commercial property, offices, you are going to have multiple businesses in there paying you. These will tend to be in a 3-5 years lease with you and therefore, that is guaranteed revenue for you over the coming years. You don’t need to worry about finding new tenants as people are already in your building. All you need to worry about is maintenance. Once your time is up, then you can post a property for sale online to sell your commercial building.
Steady Income
As mentioned before, these leases tend to be a long period, between 3-5 years, depending on what your commercial property offers. As you have people in your property, you are guaranteeing a set payment each month from your tenants. This means you don’t have to do any additional work, trying to get tenants to fill your property.
Now, with long leases, there is the risk that you could lose money because rent doesn’t increase during their term. However, if you put in your lease that you are looking to increase when inflation increases then you can. This is very common for a commercial property landlord and it is a great way to ensure you are not reducing your profits during difficult times.
Less Competition
When you are buying residential property, there is more competition because this is more affordable. When purchasing a commercial property, there is far less competition which makes acquiring commercial real estate much easier. The deposit for commercial is much greater than for residential and therefore, more people are looking to buy commercial property.
It is worth noting that if you are aiming to buy commercial property in a city centre with a thriving economy, there will be some competition. Make sure you are ahead of the pack when you see commercial property become available and put a deposit down as soon as possible.
Spread The Risk
If you have all of your investments in one area, there is a high risk you will lose it all in one sitting. For example, those who invested in hotel real estate before COVID-19 likely lost their investment value during the pandemic. However, if these investors invested their money in other properties, they would have had that covered.
Investing in commercial real estate is a great way to diversify your investment portfolio. It is a common strategy for many investors because it offers more security to their wealth. The richest people in the world will have their money invested in different areas rather than just one place. Diversifying your portfolio will offer great profits and provide you with a secure and stable income during this period.
Significant Value Increase
Last but not least is the value increase of commercial property over time. Like most buildings, real estate property increases over time, as long as it is looked after. If the area continues to improve then so will the value of your property, thats how the market works. If you no longer wish to run your commercial property then you can sell it for a lot more money than you initially bought it for.
This isn’t the case for all commercial properties so make sure you complete your due diligence to ensure the value will increase. If the area isn’t a good place to be and transport links are difficult, the value of the property won’t increase that much. However, if there are many transport links to this area, the value of the property will likely increase significantly over a long period.
Investing in commercial real estate is a good idea if you wish to do it for a long period. If you are just looking for a short-term investment, investing in commercial real estate won’t be the best strategy for you.
Decide Whether You Want To Invest Short-term or Long-Term
Before you begin investing, you need to decide what are your financial goals. Do you wish to invest so you can retire earlier or, is this something where you wish to make a quick buck? Investing in commercial real estate is good but it benefits those who invest for the long-term.
Short-term property investments tend to be when you are flipping property. For example, buying down a run-down house and renovating it before selling it for a higher price. This can be completed in the space of 3 months however, this cannot be done with commercial real estate.
Commercial real estate profits more in the long run, for example, if you buy a commercial office, consider owning this building for ten years before you consider selling it. The longer you hold onto your commercial real estate, the more profit you will build, it is that simple. It doesn’t matter whether you are investing in commercial property in Hull or real estate in London, you will need to hold this for the long term to ensure you build up the right amount of wealth and sell it for significantly more than what you bought it for.