Exploring the Pros and Cons of Commercial Rental Property Ownership
Commercial property, which includes properties such as retail buildings, office buildings, warehouses, industrial buildings, and apartment buildings, can make for a good investment opportunity. To determine if this is the right type of real estate investment for you, it is helpful to explore the pros and cons of commercial property investment.
Pro: Income Potential
Investing in commercial property offers the potential of enjoying an even greater rate of income than the typical single-family home. While you can generally expect to receive a one to four percent annual return with a single-family home, commercial properties generally offer an annual return of between six to twelve percent.
Con: Larger Upfront Costs
While commercial property investments may generally offer a greater rate of return than a single-family home, it also typically requires making a bigger initial investment. Not only are commercial properties typically more expensive than single-family homes, but you will likely experience greater expenditures for maintenance and repairs.
Pro: Multiple Streams of Income
Since a commercial property is often rented out to multiple tenants, you help to minimize your risk when you purchase this type of property. After all, with a single-family home, you completely lose out on income if your tenant leaves the property or does not pay on time. With a commercial property with multiple tenants, on the other hand, the impact is not so great if one does not pay or moves on to a different property.
Con: Dealing with More Tenants
Of course, dealing with multiple tenants also comes with its downsides. Each tenant comes with its own set of demands, needs and concerns that you have to address, making it more difficult to field phone calls, collect rent and otherwise meet the individual needs of each tenant. With the help of a property management company, however, you will not need to be overly concerned by this potential con.
Pro: Limited Hours
As the owner of a single-family rental, you have tenants living on the property 24 hours per day, seven days per week. With commercial property, however, your tenants are likely to go home during those times that are outside of business hours. Therefore, other than emergency situations, such as fire alarms and break-ins, you should not need to worry about receiving a midnight call from a tenant in need of repairs or a spare key.
Con: Increased Liability Risks
While your tenants may only be on the property during typical business hours, owning a commercial rental property does increase your chance of facing liability issues. After all, commercial properties tend to have more public visitors who could potentially get hurt on the property or who could cause damage to your property. This means you are going to want to be extra sure to have enough property and liability insurance in place to protect your investment and your business.
Pro: Vested Tenants
Of course, your commercial property tenants will also have a vested interest in ensuring patrons are safe and your property is attractive. After all, the condition of your property is a reflection on their business. As such, commercial property tenants are more likely to assist with maintaining and improving upon the quality of your property than single-family housing renters.