Most investors start their careers by investing in residential property. This is often done because residential property is often seen as a safer investment. While that may have been the case in the past, it couldn't be further from the truth nowadays. Commercial property has not only become a very solid investment choice over the last decade, but it also offers investors other benefits that residential property investments can't match. Below you will find the top reasons why investing in commercial real estate is a sound idea.
1. Commercial Property Generates More Income
One little known fact that isn't widely circulated is the fact that commercial properties tend to generate more rental income than their residential counterparts. In fact, a typical commercial property will generate anywhere from 60 to 200% more rental income than a residential property of equal value.
2. More Stable Leases
Commercial property tenants tend to invest in longer leases than residential property tenants. The average lease for a residential property is between 2-3 years, while the average lease for a commercial property is between 5-15 years.
3. Lower Inflation Risk
Commercial properties tend to be very stable and hold their market value better than residential properties. They also depreciate slower than residential properties. Commercial property has been seen by many analysts to be a great hedge against inflation.
4. Commercial Property Is Unappreciated
The commercial property sector is often ignored by investors. This is because many commercial properties declined in value due to the real estate bubble. It is also due to a general lack of belief in commercial properties as a viable investment. This creates a fertile environment for the investor looking to get in on a good deal. The market of commercial properties is on the upswing, which is sure to generate great profits for those who get in early.
5. Commercial Properties Are Easier To Manage
Commercial property is just easier to manage. There is less overhead in managing commercial properties than there is managing residential properties. Here is an example. Imagine that you own a commercial office building with 20 tenants. They are all in one location and easy to service. Now imagine owning 20 different pieces of commercial property scattered all over town. Just looking at this example highlights just how much easier it is to have serviced offices and run commercial properties.
These four points highlight the clear advantage that commercial properties maintain over residential properties. Commercial properties are easier to maintain, offer more long term stability and provide a greater return on investment. Commercial properties may have been the most underrated commodity in the real estate market in prior years, but smart investors are quickly catching on to their potential.