Aus Truth-Quark
Commercial real estate purchase is the natural progression from residential property purchase. Experienced property investors tend to move into commercial real estate earlier than later : and for very good reasons.
When your portfolio grows you will find it difficult to manage your investment funds if a great portion of these is tied in residential properties. Imagine if you possess $15 million worth of residential properties. That will be a lot of homes and tenants to take care of.
Alternatively $15 million will buy only a very small number of commercial properties that is comparatively easy to manage with much lower overheads. Moreover, the return on your investment in commercial property is much more than residential property.The income is online and not gross because the occupant pays each of the out going expenses. The income is also far more stable because of the long leases.
It is regular to have dividends of around 10% net for a commercial property investment and any where from 7% to 9% net return for a prime real estate property.
The value of a commercial real estate to the great extent depends upon the quality of the particular lease. In most cases the value is determined by taking net contractual rental being paid and use of any capitalization rate to arrive at a value. The value can be determined by the grade of the renter and length of the lease.
The price of a commercial property can drop considerably if it becomes vacant. I've come across commercial properties being sold at less than half their value if they're difficult to rent.
Commercial property management is additionally much simpler due to the fact tenants have a very strong vested interest to maintain the property to a high standard. Tenants usually derive the income from the property. They must keep the real estate property looking good and maintain functionality to impress their clients.
I have come across tenants waste hundreds of thousands of dollars to generate improvements for the property. These types of improvements stay with the property long after the renter has left the real estate.
Real estate law is more flexible towards commercial lease contracts. You can virtually word as well as add any clause that is certainly agreeable to the contracted parties. It is common to charge penalty interest for the out standing rent or even lock the particular premises on continued default of rent.
By far the greatest risk throughout commercial real estate investment decision is finding a new renter in case of the vacancy. In commercial real estate the requirement of each occupant in terms of size, location, use and lease payment potential is so unique that it is difficult to get the right tenant ideal property.
For that reasons mentioned above it is also difficult to sell any commercial property investment. Increased the value of property there are lower number of investors to buy the real estate. A commercial property investment decision is significantly less liquid when compared with other assets because there are not many players available in the market.