An investment is one the best decision you can make for yourself. However, it isn’t always easy to decide what type of investment to make. One of the most common investments people make is regarding the real estate sector. When we’re talking about real estate, there are two varieties people are often torn from investing – residential and commercial.
To differentiate the two, residential involves renting out homes, whereas commercial investments imply renting out to businesses and stores. Between both, commercial properties potentially make a better investment since they tend to come with more lucrative returns, but they also come with their own set of challenges. In this article, we’ll be discussing everything you need to know before investing in commercial property.
What Are Commercial Properties?
When it comes down to it, commercial properties are used for business purposes. Examples of these are:
- Industrial estates
- Apartment buildings with multiple units
What makes them an attractive investment is that while initial investment costs are higher than residential, the potential returns can also be higher. It’s a great investment because as an investor, the returns or profit is the factor you’re primarily focused on. In comparison, commercial properties can provide twice as much returns (6-12%) as residential properties (1-4%).
Everything You Should Know About Investing in Commercial Property
1. Longevity of Returns
The best investments are those you can’t rush, and commercial properties are no exception. Residential properties might be easier and faster to invest in, but commercial properties are more worth it in the long run. Whether it’s finding new tenants or renovating the building, the process generally takes longer compared to investing in residential property, but the payoff can be considerably larger.
2. Varieties of Commercial Properties
If you’re new to investing, it’s easy to think how property types are similar, but that’s not the case. In commercial real estate, there are five primary sectors:
- Industrial – manufacturing plants, warehouses, etc.
- Office – offices for businesses
- Retail – retail stores
- Multifamily – multiple units in an apartment building
- Special purpose – amusement parks, farms, gas stations, etc.
It’s advisable to choose one of these that will encourage you high returns in the long-run. Not all of these sectors perform at the same level so it’s important to identify which is more profitable as an investment in your unique circumstances.
3. Consistent Cash Flow
Due to longer lease periods, you have a consistent income flow when you choose to invest in commercial real estate. Commercial properties also generally have more units than residential, which encourages your income to multiply further. This is one of the many reasons why commercial properties are seen as the ideal investment compared to residential properties.
Another aspect is what’s called the triple net lease, which means the tenant pays for expenses like insurance and maintenance on top of rent and utilities. As an investor, this means more returns and profit for you.
4. Longer Leases
When it comes down to it, the longer the lease, the more profit you get over time. When you make the decision of investing in commercial properties, these will generally have longer lease agreements compared to residential properties. Commercial property leases continue for several years, so that’s something you can take advantage of as an investor.
5. Limited Operational Hours
It’s an underrated advantage that compared to residential properties where operations are 24/7, you don’t have to deal with this as a commercial property owner. You don’t have to attend to your tenant’s concerns 24/7, which allows you to have a more balanced work-life as an investor. It can be frustrating for any landlord to have to deal with things like water pipe leaks after-hours.
6. Business Relationships
As an investor, building your network is extremely important. You should have several business-to-business connections when you invest in commercial properties and you can even interact with business owners renting your building. This is a much better option compared to residential properties where you won’t have the opportunity to expand your network with other business owners in the field.
7. Limited Competition
You don’t have to worry about tough competition with commercial properties since it’s generally perceived as more difficult. This means you won’t have to compete as much over commercial property, and this alone can give you an edge as an investor.
- Commercial property can give you higher returns than residential property.
- While commercial property means that you need to cash out a higher initial investment, this is the primary reason why there’s also an attractive reward.
- You get a steady cash flow with commercial property with the added factor that the returns are higher compared to residential properties, between 6 to 12% return.
- If you choose to invest in commercial property, you need to have the patience for it as the process takes longer.
In the end, investing in commercial property investment is one of the best decisions you can make, no matter what your financial goals are. While you need to save an adequate amount as an initial investment, you get consistent returns in the process.
The Philippine real estate sector is currently on the rise, which is why more investors are gradually realizing the potential behind investing in commercial properties.
If you’re interested in looking for the best deals in commercial properties in the Philippines, don’t hesitate to check out Remax Gold’s listings.