Real Estate Investing: Why Commercial May Be Better Than Residential

If you're looking for a good investment property, you are faced with a few choices. You can buy a house, make some improvements, sell it and pocket the equity, buy a house or condo and rent it out, or you can buy a commercial property to rent out to business owners. Even though buying a commercial property may seem less interesting and more costly, it can actually be a much better place for your money to be spent, as these properties have several advantages over other real estate investments. 

Businesses Want To Succeed

When you lease out a house to a family or a group of young adults, it's a gamble. After all, tenants can sometimes wreak havoc on your property, and often have no motivation to spruce up the area, because it's not their house, it's yours. 

Businesses are different. Because your building is the face of their service, they need to make sure that:

  • it's kept clean. Restaurants, retail stores, and commercial warehouses must be kept spotless in order to provide a good service to customers that makes them want to come back. Cleanliness is the key to success. These tenants won't trash the place.
  • it looks like it's in good repair. If the bathrooms are falling apart or the paint is peeling, the business will take a hit. Business owners will not delay in making you aware of possible problems, and may be more motivated to make small fixes on their own.
  • it remains functional. A functional space is a successful space. Damaged electrical or trouble with plumbing means that the bottom line will be affected. Therefore, these tenants will do all they can to make sure things continue to work correctly. 

You're More Likely To See Returns

With a residential property, you're always looking for ways to make a profit, but it's a balancing act. Your monthly rental rate will be dictated by the property location and quality, so you can't ask for too much, as most single families have a fixed income. If you ask too much, you risk having trouble finding long-term tenants. Also, making improvements and paying for regular maintenance can reduce your net income. Most residential properties have a return of about 1-4% per year.

Commercial properties from places like Goodnow Real Estate Services are more likely to provide a greater return on investment. In fact, your returns can be as much as triple those you get from a residential property. This is because businesses are willing to pay more for location and quality space, and have greater potential to increase annual income. Also, because the owner and the tenant want to see the business succeed, the value of the property will also be sustained longer, which means you'll have fewer maintenance costs. 

Finally, you have less risk when it comes to renting to businesses. Some families may suffer from loss of income, or need to move suddenly. Even if they have a set lease period, getting the money owed can become a headache. If you own a set of storefronts or an office building, losing one tenant is not the end of the world, as you may have three or four others in the building to pick up the slack. 

It's Easier For You

As a residential landlord, you're on call all the time, because people are living in the house twenty-four hours a day. It won't be uncommon for a tenant to call you late at night to report that they've locked themselves out, or that the sink won't drain. Because most business spaces work from 9-5, you'll receive most trouble-shooting calls during daylight hours. 

You also don't need to jump through as many legal hoops with a lease contract. There simply aren't as many laws surrounding commercial rentals, which means you and your tenant can work out a flexible agreement that meets both your needs, without worrying about tenant and landlord responsibilities.

About Me

Real Estate Crash Course: The Fundamentals

After inheriting my house from a deceased loved one, I had no idea what it was like to go through the home sales and purchase process. When a medical emergency necessitated selling and moving somewhere else, I was in over my head. Luckily, I worked with a great real estate agent who helped me understand the entire process, from listing to inspection and closing. I created this site to share my experiences and knowledge. Whether you're buying or selling a family home like I did, I hope that it helps you as you venture into your first real estate transaction.

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