On account of its merits like consistent returns, soaring rental value, and a continuous source of passive income, Investment in commercial real Estate has always lured the investment fraternity. It is supposed to have enormous growth potential with consistent cash flow. Though, some veterans also point their fingers towards its downside.  Let’s take a thorough look at the advantages and challenges surrounding commercial properties. 

What are Commercial Properties

Retail buildings, industrial buildings, office buildings, warehouses and even apartment buildings come in the ambit of commercial real estate properties.

Advantages of Commercial Real Estate Investment

No expenses on furnishing

Almost negligible or no furnishing expenses come with investment in commercial properties. As an investor, raw Property could be handed out to the tenant or occupant.  Commercial properties are furnished by the occupant themselves as per their need and aspiration.

Potential of Income

Commercial properties have an edge over rental properties as it has a potential to earn higher income.  Commercial properties manage to bag anything between 6% to 12 % of the purchase price as an annual return . This depends on the area a commercial property is located at.  This lucrative return is somewhat exceptional. Orion One32 offers rental up to 12%, Explore investment opportunity.  

No hassle to deal with occupant

The tenants of commercial real estate are generally well- established companies or corporate houses. As they maintain a professional approach, there are less chances of any hassle or bother in terms of getting rent on time, agreement renewal, misuse of property, and such likes. Both occupant and property owner have to follow the earmarked guidelines.

 Long-lived Commitment

Commercial properties are generally leased for a long time and term. They are leased for 10 to 20 years and even more at a time with yearly rental value appreciation. This ensures the owner a regular and consistent return. The relationship between owner and occupant of a commercial property is more of a business -to- business relationship. Formal and polished.

No misuse of property

Unlike the residential occupants, occupants of commercial properties have to take care of the property as their own. Because, if they do not keep the property in condition, it may give a wrong impression to their customers. Occupants are bound to keep the property spruced up to maintain the look and feel as per their business image.

Challenges in commercial real estate investment

Towering investment

One of the most apparent disadvantages of commercial real estate property is hefty investment that it demands. It is generally out of the reach of common individuals or retail investors. It is only meant for big fishes. So somehow it creates a wall of restriction around it.

Costlier loans

In comparison to residential property, a loanee of a commercial property has to shell out more bucks in the form of interest. Beside the interest rate, terms and conditions are also determined on the basis of location, investor’s profile, type of property and the period of repayment. Rates of interest of commercial real estate loans are 1.5% to 5% more than residential real estate loans.

More upfront capital

In terms of upfront capital, commercial real estate investors need to have more upfront capital than a residential real estate buyer. Loan to value ratio of a commercial real estate property is 20% less than the residential property, so the buyer of a commercial real estate property has to pool more money from their pocket.

Thorough research required

The investor of commercial real estate needs to have thorough market knowledge including overall cost of acquiring the property, the taxes involved, zonal laws and bylaws for renting out, rental potential, etc. Investors in commercial real estate need meticulous planning and research before investing in a commercial property. Any misjudgement may open the door for a big loss.

No Tax Incentive

Contrary to home loan, there is no tax benefit for purchasing a commercial property on loan.

Conclusion

Investing in commercial real estate needs thorough research and one should invest after keeping in mind all the points discussed above. Considering and weighing them all, it is quite convincing that commercial real estate investment is very promising and rewarding.

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