Any kind of property, whether it is a commercial property, or residential property can be a truly fantastic investment opportunity. When it comes to your money, commercial properties are known to offer great financial rewards compared to residential properties. With that being said, there are some unforeseen risks that commercial property owners take on.
For that reason, if you are interested in owning a commercial property it is wise that you do some research and learn about the major pros and cons of that kind of investment.
If you are interested to learn more, continue reading below:
Table of Contents
What is a commercial property?
In order to really know the pros and cons of a commercial property, it is first important that you know what a commercial property actually is. Below is a list of the most typical types of commercial properties:
- Retail buildings
- Office buildings
- Industrial buildings
- Apartment buildings
- Mix use buildings, such as retail, office, and apartments
There is no doubt that there are slight differences in terms of running each and every type of commercial property, but the overall pros and cons that exist within these types of property are pretty consistent.
Pro – income potential
One of the most important pros to keep in mind is that they typically have a great annual return. In fact, that return price usually comes out to around 6 percent to 12 percent. This is much higher than single-family home properties where the return is usually 1 percent to 4 percent.
Con – Major commitment
One con that you might want to be aware of is that commercial property investments do require a lot of time. You will have to be a present landlord and make sure to fulfill any requests from your tenants to make sure that they are satisfied and treat the property with respect. You’ll have a lot to manage, much more than if you were just purchasing a residential property like a home.
Pro – Professional relationships
Another great aspect of owning a commercial property is that you are much more likely to have a business-to-business relationship with your tenants. The reason why is because both businesses’ reputations depend on the quality of the property. Without personal relationships getting in the way, you are likely to have easier time-solving issues, getting your rent checks, and maintaining tenants for many years.
Con – Larger initial investment
This could be seen as a con if you do not have the liquid cash in order to make the purchase easily. Purchasing a commercial property is likely going to cost you more than purchasing a single-family home, and it could keep you out of vying for the top properties in the area if you are strapped for cash.
Pro – Limited hours of operation
The final pro for you to keep in mind is that commercial properties have limited hours of operation, unlike an apartment building where people are obviously there throughout the day. Limited hours of operation means you’ll have more traditional working hours and won’t have to worry about middle-of-the-night emergency phone calls from a tenant.