Investing in Commercial Real Estate

It's easy to get caught up in the real estate craze and all its promises of quick and profitable returns. But investing in commercial properties is not without its drawbacks. If you're considering this type of investment, it's important to be aware of these risks before throwing your money at them.

This blog post will walk you through some things to consider before taking the plunge into commercial property investing, as well as what it takes to make a successful investment work for you.

There are two primary types of commercial real estate. First, there is the commercial property you buy to hold onto, collect rent from and hopefully sell for a profit in the future. This is called investing in "income properties." The other type of commercial property is what you would buy to occupy it yourself. This is called investing in "maintenance properties." Because each investment comes with its own set of risks, let's look at them separately.

Commercial Real Estate: Income Properties Investing in commercial income property can be an attractive option because you're relying on someone else to pay the monthly or yearly mortgage while you sit back and wait for your money to roll in. The key word here is "wait." You may have to wait several years before you can cash out. The average time an investor has to hold onto a property before selling it and making a profit is three years, according to the National Association of Realtors. This is because there are so many factors affecting the investment . These factors include: The size of the building in which you're investing The local real estate market Whether or not you are buying with another investor or alone And, if you're buying on your own, how much equity and how many years you've owned the property already

Income properties also require quite a bit of attention from both tenants and landlords. Depending on what kind of property you buy, you might have to deal with any number of problems. For example, in commercial offices you must be prepared for malfunctioning air conditioners and heating systems. In retail spaces, it might mean dealing with broken display windows or leaky roofs. If a tenant is breaking the terms or conditions of his or her lease, you'll have to find ways to either correct the behavior or evict the tenant. And, if your tenants are providing poor customer service, that can reflect quite negatively on your brand as well.

Because there are so many little details involved with income property investing , it's important to do your homework first . You can start by looking at your credit rating. A poor credit score could result in higher interest rates and fewer investors willing to work with you. No one will be willing to buy your property from you if they think you're having trouble paying off your existing debt.

Another thing to keep in mind is that you have a lot invested in the apartment or store you're buying. If something goes terribly wrong and the property doesn't produce the expected returns, you could lose your entire investment. Income property investing can also be stressful and time consuming. And, if you plan to buy a commercial property on your own, it will be a while before you can even think about selling it because there are so many factors affecting investment returns . All of this could put quite a strain on your business . As an alternative to all of these hassles, some entrepreneurs decide to partner with other investors or companies that specialize in income properties. They buy a chunk of the building and collect rent, usually on a monthly basis. As an investor, you can expect to see anywhere from a 4-8% return on your investment each month.

Commercial Real Estate: Maintenance Properties Investing in commercial real estate for your own use is quite different from investing in it to collect rent every month or two. When you buy commercial property to occupy it yourself, you can expect to make money every time someone visits your business. However , because this type of property requires significant work before it is ready for any kind of activity, the amount of profit you'll make on these types of properties will be minimal . If you're thinking about buying a commercial property to occupy, think long and hard before plunking down any cash and taking on the responsibility of a real estate buy. Here are some factors to consider: Work involved If you have experience in construction, then you might have an easier time dealing with this kind of property. However, even if you don't know your way around a hammer and nails, a commercial property will still require quite a bit of work before it can be occupied. You'll need all new plumbing, an updated electrical system, new flooring and maybe even new windows or walls. And don't forget about the legal side of things . That's right – there will be paperwork for you to fill out before your building is complete. Smaller problems will also be constant. For example, you'll need to deal with plumbing issues, the occasional bug infestation and mice problems. You'll also have to be prepared for plumbing or electrical outages when they occur. And if the water or electricity starts leaking, you'll want to be able to respond quickly . The bottom line is that commercial maintenance buildings require a lot of physical attention – something many business owners might not have time for. There are also financial considerations that come into play . When you buy a commercial property, you're responsible for paying not just HOA fees (if there are any), but the property taxes and insurance as well.

Conclusion While commercial property investing is a vibrant business, it's important to be aware of its risks. There are many types of structures to choose from, so you have a lot of options when it comes to how you can invest in the market. If you're willing to put in some time and effort, then buying income property probably won't be an issue for you . However, if your hands are tied with another type of investment or if you have a full-time job that requires most of your time, your chance of making a profit with this sort of property will be slim. Maybe renting out that spare room down at the local coffee shop will prove to be more profitable.