You’ve spent the last few years learning the ropes of buying and selling real estate for profit. With new knowledge and skills as well as seeing trends in the market change, you know it is time to develop yourself in a new niche, the commercial real estate niche. Take some time to understand the pros and cons of commercial property investment in Lufkin before you risk a large investment.
Various Property Types
A big pro in considering commercial property investments is the diversity of investment choices. There are many different types of commercial property you can buy that may align with your personal and business experience. There are strip malls, office buildings, warehouses, apartments and raw development land to name a few. This means there are different types of opportunities for investors to jump in. A small business owner might see the benefit of buying a building to house his own business and lease the other spaces on the property to create an additional income stream. A different investor may have had rental properties and decide that owning an apartment building is the next step. Choices equal opportunities for diversity.
One thing that many real estate investors new to the industry experience is frustration with timetables. It takes a lot of time to buy and develop a commercial property. Once you own it, you have to be committed to running and maintaining it. It is possible to hire a management company to do this, but depending on the profit margins in the property, you may not have the ability to do this initially. If you can’t hire out, you need to be an active manager.
Commercial property tenants are business owners who can’t have problems linger with a building. If there is a leaky roof or plumbing problem, these must be addressed immediately otherwise you may face adverse legal action sooner than later.
Potential Income and Equity
One of the biggest reasons investors are drawn to commercial real estate is because of the potential income and equity opportunities. In commercial areas where there is a need for quality business space, it is possible to have a line of potential tenants wanting prime retail or office space. Tenants are essentially making the mortgage payments, helping the investor offset costs of ownership and essentially paying for the owner to get equity in the property.
Of course, there is a flip side if commercial conditions change and there are a lot of vacancies in the area. An investor could be compromising monthly rents or sitting with unfilled spaces that become invitations for vandalism and crime.
There are not as many commercial real estate investors as there are residential real estate investors. This means that it can be difficult to sell a property. Residential property owners rarely want to take on the higher level of management and risk associated with buying and managing commercial property. This means if the market takes a downward spiral or you just want to liquidate to cash out, you could be sitting on the property for extended timeframes waiting for the right buyer to come along.
As a business asset, there are many tax benefits to owning commercial property. All expenses including insurance, maintenance and repairs are deductible when filing corporate taxes. Additionally, the real property is depreciable, which is another benefit of allowing owners to reduce tax liabilities from year to year.