Every property investor would be faced with several options when he is looking to expand his portfolio. Your Realtor would advise you to buy a rental, commercial, single family or multi-family property depending on how much you are ready to invest and what your options are. Keeping that in mind, you need to understand what commercial real estate is. Commercial real estate consists of land or buildings that you buy and keep as investment. You can rent the property and earn money from the same. You can buy housing complexes with the purpose of renting them out, but you need to have at least 5 units, if you want it to be considered commercial. Retail shops, industrial type buildings are all considered as commercial investment. A novice would find it difficult to buy commercial properties and manage them successfully, but the returns you can earn from them in the long run is rewarding enough.
Some Realtors advise you to buy commercial properties if you are interested in expanding your real estate portfolio and they claim that such properties have several advantages that single family or multifamily properties don't have. Let us examine what those advantages are:
Greater income potential
You have a higher income potential with commercial properties; about 6-12% of the annual price of the property. This would of course, depend on the area where your property is situated, but it is definitely worth a try.
The tenants would look after it well
If you are giving a house for rent, there is no guarantee that the owners would look after it well, they might leave the property with so many damages and repairs that you would be forced to part with a lot of money to get them repaired for the next tenant. But when you are renting for commercial purposes, it would normally be as shops and showrooms, and the tenants would keep it clean and neat.
Limited hours
Another advantage with having commercial properties is that they normally don't function at night. Since they have normal working hours, you can do the required repairs at night, and not worry about displacing the tenants as in a single or multi-family home. This would help you to do the chores at your convenience and under no pressure.
Price evaluations and rent escalations
If you want to increase the rent on an annual basis, you can request the income statement of your tenant and based on the proportion of rise in income, you can increase the rental rate as well. In case, you want to evaluate your property (if you want to sell), you can use a knowledgeable broker, so that you can set the asking price in such a way that you can earn the prevailing cap rate for the property.
Commercial real estate can balance your portfolio
If you buy commercial real estate, it would be a great source to earn good income because the money earned is according to the square footage that you own. In may not be so with residential real estate. And here is another advantage that would make you sit upright and consider commercial real estate. If you have 10 units as commercial income, it wouldn't matter to you if you lose one tenant once in a while; because you are losing only one-tenth of your income. But with one single residential real estate, a loss of tenant means loss of income. You can also enjoy a much steadier income flow because the income earned through leases is more profitable.
Conclusion
Investing in commercial properties would be a major investment that you can add to your portfolio, but you can also enjoy significant returns in terms of revenue. The only problem that may arise may come in the form of banks, who are generally quite reserved when it comes to providing investors with commercial property loans simply because such properties require high start-up rates.