Is it Worth Investing In Commercial Property?
Category Advice
Short answer:
Yes!
Longer answer:
Yes - if you find the right commercial property, that is.
Are you considering an investment in commercial property in 2023? Wondering if such an investment is worth it? Owning commercial property can yield plenty of profits and rewards, often more so than if you invested in residential property.
It's important to remember, though, that investing in commercial property is not the same as investing in a house or a flat. The advantages and disadvantages that come with the purchase are unique, so it's wise to consider them before buying.
Before investing, be sure to think about all aspects of the property's potential, including:
- Location (safety for staff and clients who travel)
- Accessibility (traffic activity, visibility, public transport)
- Type of premises (warehouse, industrial, retail, office space)
- Property assets (air conditioning, parking, security features)
- Tenant potential (the type of tenant you want)
- Tenant needs (the business requirements of potential tenants)
- Zoning (restrictions and legalities)
- Potential environmental issues (pollution, noise, conservation)
- Surrounding area (neighbouring businesses or residents)
Here are some key pros and cons of investing in commercial property
Pros and Rewards
- Income risk is often lower when you own commercial property. Commercial tenants tend to take out longer leases and cash flow is more secure.
- If you choose the right commercial property, over time you are likely to see much higher returns than with residential property.
- If you are patient and find premises with lots of potential, you stand to yield great rewards.
- As a commercial proper owner and/or landlord, you may have more legal favour in the event of conflicts with tenants.
- Tenant hours are typically limited, so the likelihood of you having to deal with after-hour property emergencies is minimal.
- Since you will be dealing with other business owners as tenants, you may find that they are professional and easier to work with than residential tenants.
- Your commercial tenants are more likely to take care of the property since the success of their business is tied to the state of the premises.
Cons and Risks
- Most banks will usually cover no more than 75% of the commercial property purchase price. This would mean that you may have to fork out up to 25% deposit upfront should you need financing from the bank.
- When you buy commercial property you will be held to much shorter loan repayment periods (under 10 years) unlike the average residential repayment period of 20 - 30 years.
- If the property houses only one tenant, you risk several months without rental income should the tenant decide not to renew their lease. You would still need to cover your bond and other monthly costs.
- You would need to make sure that you have emergency funds to cover maintenance costs, property damage and the occasional vacancy in the building.
- Managing commercial property can be more intensive than managing residential property, requiring more time, energy and effort. Hiring a property managing agent would easily solve these issues, but this comes as an extra expense.
- You have less control over who has access to your commercial property while your tenants conduct their business. There is a risk of criminal activity, injury on the premises, etc.
It's clear that you will need to weigh up all of these factors, including those factors unique to your business, to determine whether investing in commercial property is right for you.
Need professional advice to help you decide? Let's talk!
If you are seriously considering investing in commercial property we would love to meet with you. Our experienced commercial agents come armed with a wealth of industry knowledge and experience to find your dream premises. Contact our offices today.
Author: SAProperty.com
