Buy Commercial Property: Everything You Need To Know
To buy commercial property is to purchase any property with the goal of making your business grow.3 min read
2. Reasons Not to Invest in Commercial Property
To buy commercial property is to purchase any property with the goal of making your business grow. There are many uses that the term may refer to, such as properties used in the retail business, office spaces, warehouses, buildings used for industrial purposes, residential buildings, or a mix of any of those.
Reasons to Invest in Commercial Property
The reasoning behind buying or investing in upgrading a commercial property has everything to do with that particular property's potential of returning your investment while adding a profit.
- The number one reason for investing in commercial property is the superior earning potential compared to residential rentals. A family home may have a return of 1 to 4 percent off the purchase price, while commercial properties show much higher numbers, 6 to 12 percent, depending on their area.
- Another lucrative way of making a profit off a commercial property is by using it for advertising. You can do that by selling advertising space on billboards in or on the building or selling ad space within a service directory that you can publish if you have a high enough number of tenants. In certain situations, it may make sense to cross-advertise with other similar businesses in your area.
- You can also profit by offering those who rent your space certain extra facilities, such as cleaning services or more parking spaces, at an additional cost.
- As opposed to residential property, the spaces within a commercial property are mostly rented by other businesses. That comes with extra advantages for the property owner because the other business owners will, first of all, take exceptional care of the space that hosts their livelihood. Also, direct interactions are more hassle-free, because the relationships are purely professional and all parts involved have the same major goal, increasing the property's value and reputation as much as possible.
- On a personal level, managing the tenants' needs on a commercial property takes less time, because companies don't tend to work at night. What that means is, barring some rare, unforeseen occurrence, you will be enjoying stress-free evenings and nights.
- If and when you should decide to sell the commercial property, you will find that evaluating it is a much more straightforward affair than in the case of residential buildings. While residential properties tend to have their prices influenced by biases and emotions, when it comes to commercial property all that matters is the estimated profits it can bring.
- Compared to residential real-estate, you will have to worry about far fewer rules and regulations imposed by the state. There's also a much smaller market fluctuation when it comes to rent prices, so it's easier to make estimations about the future and plan accordingly.
Reasons Not to Invest in Commercial Property
- From the property owner's point of view, it's a much more hands-on job than owning a residential building. You will have to actively manage your tenants, annually adjust the common area costs for every business within the property, and handle any issues or safety concerns, while trying to maintain a good image.
- More complex maintenance issues will arise, and it's very likely that you will have to hire specialized people to come and fix them. All the day-to-day management can be externalized to a property management company; however, that will cost anywhere between 5 and 10 percent of rent revenue. Choosing between handling situations yourself or hiring a company to do it for you is a decision that needs to be taken beforehand.
- Buying commercial property is usually more demanding financially at the beginning than residential rental. Investing more upfront will decrease your flexibility and may leave you vulnerable to situations where tenants won't pay their rent or unforeseen large maintenance costs.
Before investing in any kind of property, all the pros and cons above should be analyzed and you should properly determine how they apply to you or the property you are considering. The right property is not only one in a good condition and in a desirable location, but also one that fits your business and is estimated to bring you higher earnings than expenses. If all these boxes are ticked, then all you need to do is agree on a fair price with the current owner and secure a loan deal, and you will be the owner of a commercial property.
If you need help to buy commercial property, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.