Property Expert Nicholas “Nick” Statman on Real Estate Investing in 2020.
If you’re ready to expand your property investment reach, make more money, reduce turnover, and work with a more stable clientele, it may be time to look into commercial property investing. Most property investors don’t dive right into commercial listings and prefer to learn the ropes of the industry by dealing with residential real estate and other traditional investment strategies first. Commercial investing is an entirely different investment strategy, with its own set of risks and rewards.
Here are four reasons you should be investing in commercial property this year:
Higher Income Potential
Commercial properties can accommodate more tenants and occupy larger spaces than residential properties, which means they bring in significantly more money each month than a residential property. The annual return for commercial real estate is anywhere between 5 and 15%, much higher than the 2%-3% that you can expect from traditional stocks, or the 5% that is typical for a residential property. If you are looking to make more money this year, commercial property investing is the way to do it.
Commercial properties aren’t prone to consistent and often unexpected vacancies and turnover like residential properties are. If you invest in a multiple occupancy building and one tenant is late on rent or suddenly disappears, you still have the income coming in from the other tenants. Commercial leases are usually much longer than residential leases, sometimes lasting five to ten years, which means investors see long-term income generation and reduced unexpected vacancies.
A More Hands Off Approach
Because tenants are responsible for most of the maintenance and upkeep of their space, investors and landlords can take a more hands-off approach to investing. When tenants and landlords are both invested in maintaining the property, the building maintains (or improves) in quality, which means the value of the investment also improves. Another benefit in commercial investing is the flexibility it provides for your schedule. Unlike residential properties, the entire building shuts down after hours. This reduces the number of frantic, late-night phone calls you get about losing a key or that something needs to be repaired. Commercial investing typically requires more capital upfront but requires less work on your end to maximize your ROI.
Every investor/landlord knows that finding qualified tenants for a property can be stressful, time-consuming, and even expensive. There are background checks to run, references to check, screenings to pay for. And even after all of this, you may still end up with a tenant that causes trouble or is always late on the rent. Commercial tenants are typically businesses and corporations, and since the relationship with their landlord and the way they maintain the property directly impacts how they do businesses, they are generally easier to work with and less dependent than residential tenants.
Of course, commercial properties do come with a unique set of risks as well. Commercial properties do require a more significant upfront capital investment and can present unique risks that you don’t have to think about when investing in residential properties. And when it comes to maintenance, you’ll need to know how to do more than unclog a toilet or replace a dishwasher. You may need to hire professional help to handle commercial-grade repairs.
If you’re ready to diversify your portfolio, make more money, and expand your reach as a property investor, commercial property investing may be your next right step.