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The good and the bad of owning commercial real estate

Commercial real estate is one of the most lucrative real estate investment opportunities out there. This type of real property refers to retail spaces, office buildings, apartments, mixed-use buildings, and warehouses that are used to generate a profit. But just like any other investment, it’s important to take a look at its advantages and disadvantages before taking the financial plunge.

The pros

  • Commercial properties provide higher rental yields
  • If you’re looking for higher returns, commercial properties are the way to go. Online legal authority Nolo.com notes that commercial properties have a return success playing between 6% and 12% yearly. Place these statistics head-to-head with annual returns from residential properties (1%-4%) and you’ll see the big difference in earning potential.

  • Commercial properties bring in long-term leases
  • When commercial properties are rented, the leases typically last for around three to five years, with some leases even reaching as long as ten years. Passive income, in this case, is continuous for a longer length of time. Turnover costs are also lower.

    These long-term leases are possible because of more qualified tenants who possess business interests themselves. Landlord-tenant relations are more on the professional level since it is businesses, corporations, retail chains, and well-known brands that rent commercial properties.

  • Commercial properties appreciate over time
  • Just like a standard residential property, commercial properties also increase in value over time. The difference lies in the amount of cash flow generated. The value of a residential property is determined by movements in the current real estate market. On the other hand, a commercial property’s value will keep on increasing as the years go by. All it takes is for the property to be marketed well to would-be tenants. Then once a deal is forged, the owner only needs to see to the maintenance of and repairs to the property.

The cons

  • Commercial properties are a huge investment
  • If you plan to invest in commercial properties, be prepared to pay a huge amount. You are paying for prime stuff after all, from the location to the specialized facilities. Even mortgage loans for these properties also have higher interest rates, larger down payments, and longer amortization periods. Maintenance can be costly, too.

    But even with this scenario, you are assured that all your financial sacrifices will pay off the moment profits start coming in.

  • Managing and maintaining a commercial property can be challenging
  • When you own commercial property, you can expect a myriad of troubles stemming from the human factor. From squabbles among tenants to those not abiding by the agreements set in the lease contract, these can become a headache. The upkeep of the property could also take much of your time. Thankfully, there are property managers that you can hire to run the day-to-day operations of your commercial property.

  • Vacancy rates are higher
  • Finding qualified tenants for your commercial property can be a challenge, especially during a tough real estate market. Properties that sit vacant for long periods of time can drain your cash flow and increase your expenses. That’s why it’s important to keep a competitive rental price and stay on top of maintenance and repairs to reduce your rental property’s vacancy rate.

Invest in a commercial property for sale in St. Louis, Missouri today! Get in touch with Cardinal Realty Group, an established industry leader with more than 35 years of commercial real estate experience. Call 636.225.0385 or send an email at Hal(at)CardinalRealtyGroup(dotted)com.