DC Fawcett Real Estate
Any kind of real estate investment, be it residential, be it commercial is profitable for the investor. Investing in commercial property has been more profitable than the residential property as you use commercial property not only for renting the premises but also for business purposes. However, commercial property involves more risks as well. DC Fawcett has mentioned about the pros and cons of commercial real estate investment.
Drawbacks in commercial Real estate investment
Commercial properties can be
- Retail building
- Office building
- Industrial building
- Apartment building
- Mixed use building wherein it can be used for all the purposes like retail, offices and apartments.
When the income potential is more, there are more risks as well. Commercial properties have the advantages like
When you are using the commercial property for business, you get many customers buying your products. They generally return 6% to 12% of the sales they make, depending on the area, which has a higher range.
Small business people take pride in their business and to maintain their standard of living. However, in case of commercial properties, the owners may not be individuals, but operate their business as an LLC. The relationship between landlord and tenant is business-to-business customer relationships which keeps their interactions professional and courteous.
Limited hours of operations
Businesses normally wind up during the night except for the emergency calls for break-ins or fire alarms. In commercial properties, if any such thing happens at night, your alarm company will notify the concerned authorities.
More objective price evaluations
Commercial property prices are easier to evaluate as you can request for current owner’s income statement and fix the price accordingly. If your broker is a knowledgeable person, he or she will fix the price, taking the area’s cap rate into consideration.
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As mentioned, everything in this world has strengths as well as drawbacks. A commercial property has got many positive points. However, you cannot overlook the negative points. Here are the following drawbacks.
If you own a commercial retail building, with tenants, you need to devote more time than you do for the residential building. As a landlord, you cannot afford to be absent and maximize your Return on Investment (ROI). You will be dealing with multiple leases and CAM adjustments (Common Area Maintenance).
Professional help required
if you decide to handle the maintenance issues on your own, you need to be licensed. When you are not prepared to handle the maintenance problems on your own, you need to hire a person to assist you regarding repairs and maintenance. Property management revenues can charge 5 to 10% of rent revenue for their services. Hence, you need to calculate what is feasible for you.
Larger Initial investment
Getting the commercial property needs more capital than the residential property. Even after acquiring it, you can expect more capital expenditure in the future.
Commercial property has got more scope for getting good income. However, it also has a lot of expenditures and liabilities. In short to say, if your income is more, the expenses also go up.