Do you have an interest in real estate and feel that commercial real estate is where you want to establish yourself? If yes, it is important that you have a proper understanding of the industry.
Understanding commercial real estate
Commercial real estate is any property acquired with the intention of generating profit. These include hotels, warehouses, and apartment buildings, among others. The investor makes money by renting out space to tenants or owning it with the aim of making money off the property.
Rental income can be from renting out office space, apartment buildings or industrial space like warehouses. Depending on the location of the property, you can get a good amount of income that will make you get a return on investment quickly.
You can also get returns when your property increases in value due to appreciation. This does not always happen as property can lose value depending on market factors.
What makes real estate a good investment is that it is a scarce resource which no one can produce. Having property in the right area will enable you to get higher rent as tenants will be willing to pay for it. Value additions will improve the income earning potential of your real estate investment for example upgrading commercial apartments will allow you to charge higher rent thus more income for you. If you decide to sell, it will allow you to value the apartment at a higher price than you would have before you did the upgrades.
What expenses will you have? There are certain operating costs that you need to factor in when thinking of going into commercial real estate. These include taxation that requires a level of voluntary disclosure, maintenance fees for common areas, salaries, and insurance, among others.
Commercial real estate allows you to build equity. If you need financing, you can use it as collateral for the loan. If you no longer want to be in the business, you can sell it for a good price. However, since you own the property you can be sure of a steady income source that will help you prepare for your retirement.
You can use the money you receive from the tenants to settle loans thereby ensuring that you do not fall behind in whatever payments you need to make. There are also tax benefits you can get from owning commercial property.
You, however, need to realize that owning commercial real estate is not easy. You need to allocate time to ensure your investments are safe. You also need a large initial amount of capital when purchasing the commercial property. This can be challenging for most people especially those without access to financing facilities.
The decision to go into real estate is a sound investment choice; however, before you take the leap, make sure you have a proper understanding of the industry and what it means to own property. Draw up solid contracts with your tenants so as to avoid any disputes that may arise.