“Money is an employee that works for you 24 hours in a day if you know where to invest it”, says Robert Kiyosaki in his best selling book ‘Rich Dad, Poor Dad’! Well, yes! This law seems to have worked for plenty of people around the globe. It’s not surprising if I said ‘Money does grow on trees’! You just need to know which plant to water, or in other words, where to invest! Now that’s a million dollar question. The answer to How to invest money in a particular sector is easy and probably any person who has considerable knowledge about stock market or real estate industry can tell you that. But, where to invest money? That’s the challenge! This requires knowledge and wisdom in the industry.
But wait… who’s got so much time to learn about all nitty-gritty of the real estate industry while in their regular business or jobs? Don’t worry, we’ve got you covered! With decades of experience in the real estate industry, we can exactly tell you not just how to invest, but also tell you where to invest! Hang in tight!
When you think about investing in land or property, most of you would probably imagine investing on residential houses. And you have a good reason to think so. It’s most common business and you have a vision of reselling it to interested happy buyers with a fairly good margin. Or you could let out the residential property to tenants and can earn constantly every month in the form of monthly rent. Fair enough.
However, investing in residential properties isn’t the only way, in fact, it’s just one of many types of investments. The trend of purchasing commercial properties including shopping malls, office spaces, warehouses and storage outlets is booming today and we’ll tell you why! Investors are switching from residential to commercial property investments. If you are in a dilemma between investing in residential or commercial properties, read on this blog and we’ll give you 5 good reasons to switch from residential to commercial real estate investment.
5 good reasons to switch from residential to commercial real estate investment
Reason # 1 – High Return on Investment (ROI)
As compared to the residential counterparts, the returns are much higher for commercial properties. Unlike the residential tenants who may purchase houses on rent or on lease for a limited period of time, say a year or two, commercial property tenants often sign in for leases of large periods of time. Sometimes, commercial property tenants might be happy to take your property on lease for an indefinite period of time. Now, why do they choose to do that? It could be that the location covers most of their targeted market, the favorable weather conditions in case it’s a manufacturing firm, proximity to higher profits or any other likely reasons. They buy your place with long-term goals and thus sign in for leases for a much longer period of time.
And if you’ve got good parking facility, nice space or anything that a business owner is looking for, he’d probably be willing to pay you the amount you ask! You can decide on the prices and they won’t try to negotiate too much like the residential tenants do! Well, there’s a reason to negotiate for residential tenants because all they want is a home to live in. But on the other hand, the commercial property tenants want a place where they want to carry on their business, a place that yields them high returns. So, there are very high chances you can get more money here. It’s also a constant source of income for you for long periods of time.
Isn’t it easier to sell commercial properties at much higher rates and returns to potential commercial property tenants than to crack your head over negotiation for the comparatively small amount of money with residential tenants?
Also, of your tenant of commercial property vacates the place, there’s no window for putting up the ‘Property for Sale’ signboard for long periods of time. It’s a dynamic business world and there are increasing business owners who are watching out for better commercial spaces. So, you’ll readily get more tenants easily within a short period of time. So, in no case, will your commercial property stay idle, or in other words, stay in a dead state without earning you any returns! Even if it does, which I must say is a worst case scenario, real estate property advisors are just a phone call away! We’re always there to help you out in getting right people for you. So that’s the first reason – Higher returns plus the fast selling element.
Reason # 2 – Appreciation in the asset value
Well, that’s the thing with appreciating assets! They always increase in value over time and give you constant higher returns. Both residential properties and commercial properties increase in value over time. But the big difference which leads to bigger difference later is that the rate of appreciation is much higher in the commercial properties over residential properties. In fact, commercial real estate investments have been providing remarkable appreciation rates of the property, historically! Here are just some of the many reasons on why commercial properties tend to appreciate in value?
- Any favorable development in the location would lead to bringing in more number of customers into the property. You know the next half explanation. The places that attract a number of visitors or customers will definitely carry high value. It’s more like an exponential increase.
- Your existing commercial tenants’ could have made proactive and cost-effective improvements to your building. They have their own set of reasons to do it. But as the owner, the value of your property would hit sky!
- Economic development of the state as a whole. With a positive goal of improving the economy of the state, the government is always on new projects that result in constant improvements. These improvements can, in most cases, increase the value of a particular location! And if you get lucky, it’s mostly the location of your commercial property. The value is thus appreciated, again!
Reason # 3 – Better tenants
If you’d had any experience in being a residential property investor, or at least, if you’ve seen any of your friend who invests in residential property, you’d be familiar with the issues of dealing with residential tenants. They’d have disturbed you in ungodly hours before they had a trouble getting inside their house or probably, they would have discovered a small leak somewhere which is not letting them sleep, and so, they wouldn’t let you sleep. Any tiny or a not-so-tiny issue, they’d turn their face to you and you got to rush for help.
On the other hand, commercial tenants don’t bother you all that much. They’d have an in-house maintenance team of their own which would cater to such issues, thus they won’t ring you up at ungodly hours. Even if there does exist any major problem, they’d probably ring you up during the business hours as they would encounter the issues in business hours in the first place. So you can rest assured and carry on with your business or job or anything that you do for a living without having to crack your head over small issues.
The relationship between you, as the owner, and your commercial tenants is also much better as compared to the relationship between residential tenants and owner. And there’s a reason for it. Your commercial tenants won’t delay paying the rent to you if they have a domestic problem or if their business is a little down. On the other hand, residential tenants often postpone paying you up if they’re stuck in any financial trouble. And you can’t hire debt recollecting agencies every time your residential tenant is delaying the pay! And of course, we are humans! We have to understand and be empathetic about the situations of other people, on an ethical note. Well, why put yourself there in the first place? Rarely would your commercial tenant make you wait for your money because of his personal problems? So in a nutshell, the relationship becomes more business-like and professional.
Reason # 4 – Advantages of security
As compared to the residential property investment, investment in the commercial building is often more secured. Because regardless of the status of your current tenants, the value of the property goes up. When you’re investing in commercial property, it’s not just property or building that has good intrinsic value but also the land. It’s always, always a wise option to choose the property that has a good intrinsic value of not just the building, but also land. The investment on your commercial real estate will have the potential of earning you good revenue irrespective of the status of your current tenants. They may choose to leave or continue, the value of your building is going to up. And it’s a continuous process.
That is the reason real estate experts say that the investment in commercial real estate is less susceptible to fluctuations. So, you can always rest assured that in no case are you going to run into losses, or make minimal profits. Your commercial property is never going to leave you disappointed. It always carries the element of security with it! Isn’t that reason enough to switch from investing in residential property to commercial property? Well, if not, there’s one more!
Reason # 5 – Better Assessment processes that increase the value of property
The assessment of residential properties is done on a fairly arbitrary process, by taking into consideration the average comps of the places surrounding your house. So, even though you’ve made great upgrades to your house, it’s not going to count so much. You may have used the best Italian tiles for flooring or may have installed a personal Jacuzzi in every bathroom of the house, your property is still going to be valued on the basis of what upgrades are made to the surrounding properties. It becomes much of a less reasonable process of assessment of the value of the property.
On the other hand, commercial real estate properties are valued on a more reasonable approach. While still, the value of average local comps around your commercial property is taken into consideration, the entire overall value is determined after taking into account the total revenue generated by your commercial building.
In other words, higher the revenue generating capacity, higher is the value of your building. So you can actually stimulate or increase the value of your commercial building by employing ways through which you can increase the revenue generating a capacity of your building. So this small difference in the process of assessment of the value of property makes a world of difference to the owners!
So, they were top 5 reasons you should switch from investing in residential property to commercial property. At the end of the day, you’re in the real estate industry to make good money and when you’re anyway going to invest your money, why not invest it in an area that promises you good returns? Why settle down for low returns and high-risk investment over high return and low-risk investment?
Bottom line, we would say investing in the commercial property is a lucrative business decision for any person who has serious goals of increasing the net worth. If you also dream of expanding your portfolio by investing in the tangible assets, commercial properties is a way to go! Not to forget is the fact our society is built around the constantly increasing number of shopping malls, office spaces, warehouses and other business spaces.
So, investing in the commercial real estate is one of the best ways to earn a stable income and thus secure your future for many years to come. So, take your pick between the residential property investment or the commercial property investment with these 5 good reasons! Make sure your money brings in more money for you as I already quoted Robert Kiyosaki’s line that supports the idea that money does grow on trees! You just got to know where to plant it! Having said that, wishing you a happy investing experience!