Commercial Property Investment: A Beginners Guide

There’s so much information out there giving top investment advice in the residential real estate market. It’s on TV, in the media, and there’s an abundance of articles and blogs online, but little is said about potential commercial real estate opportunities and what to look out for.
When we write about commercial property, we’re talking about office space, retail stores, industrial units and warehousing; basically any building or structure suitable for operating a business. This of course means that commercial investment opportunities vary greatly in size, location, and cost; but importantly, also in risk and return.

Return on Commercial Property Investment

Whereas residential property investment is generally regarded as a low risk strategy, the commercial property market is viewed as carrying a higher risk. However, this increased risk is coupled with an elevated potential return, usually averaging around 8%.

The Common Risks associated with Commercial Property Investment

The most common risk associated with commercial property is high vacancy rates. Whereas a residential property may take a few weeks to find a new tenant, securing a new lessee could take months. The potential quality of the lessee can affect the risk associated with commercial property investment. For example, blue chip lessee’s and government departments will reduce risk levels as they will usually rent the premises for long periods and never default on payments.

Lease Duration with Commercial Property

A business generally needs a long term location from which to operate and doesn’t want to be renewing every year like most residential leases. Moving house is usually costly and fraught with stress, but expenses associated with moving a business are commonly much higher. Therefore lease durations are commonly 5 years, with the option to extend afforded to the lessee. This means that although it may take longer to acquire a lessee than a residential tenant, they are usually locked into a contract for much longer. In addition, even if the lease is for 5 years, rent can still be negotiated on an annual basis. Finally, unlike a residential lease which can be around 10 pages, a commercial lease can be over 50 pages in length – it’s all in the detail.

Commercial Investment Success relative to Economic Performance

Whereas the residential property market is seen as relatively stable, the commercial market can be volatile. Everyone needs somewhere to live, but businesses can go under and vanish from the map. If commercial property is no longer desirable in an area, hard times could lie ahead if businesses begin to relocate. Commercial investment value is reliant on a thriving economy, and losses can be hard felt if an industry up moves because their business will perform better elsewhere.

High Initial and Ongoing Costs

Purchasing commercial property usually requires a higher initial outlay than its residential counterpart. Office space in the CBD is premium square footage and is priced as such; even shared entrances, janitors’ closets, and toilets are accounted when costing for rental. Similarly, associated maintenance costs are much higher than with residential real estate; however these are rarely the responsibility of the property owner. In addition, other ongoing costs which are usually paid by a landlord of residential dwelling are not the obligation of the commercial property owner, such as taxes, rates and maintenance, which reduces outgoings significantly.

If considering commercial property as an investment option, there are companies out there with expertise and local listings. Try commercialVIEW.com.au if looking for commercial opportunities in Australia, Colliers in the USA or MoveHut if in the UK and find the right commercial property investment for your business.

Thanks for reading another article from The Amateur Financier! If you haven't already, please consider subscribing to my RSS feed. Continue to enjoy the site, and please share any articles you enjoy with your friends!

47 Responses to Commercial Property Investment: A Beginners Guide

  1. Always consult a depreciation expert about an investment property’s depreciation entitlements. Taking full advantage of the available tax benefits on an investment property can improve a property owner’s cash flow each financial year.

  2. Thank you very much for post the article. Really, it’s very good. I learnt a lot about this. I’ll try to apply your ideas and tips. It regarded hear a portion of the particulars of your exploration.
    if any one want to check the Best location of pakistan must check our site..

  3. Thank you very much for post the article. Really, it’s very good. I learnt a lot about this. I’ll try to apply your ideas and tips as well as
    Find a wide range of Commercial buildings for sale in Jaranwala Lahore with Pak Villas, Pakistan’s leading property portal.>>For More ideal properties visit Now

  4. Hi. Thanks for your recommendations and tips

    I’m a Mexican business man and one of my main customers is located in Texas. There’s this networking place where he usually arranges his meetings. It’s called Ranch Office. And based on the meetings I’ve attended there. It’s a cozy place in the Texas area. Are most Texas networking places this good?

  5. Thank you very much for post the article. Really, it’s very good. I learnt a lot about this.
    Find a wide range of properties in Pakistan with Pak Villas, Pakistan’s leading property portal.

  6. Financing commercial property can be a little more complex than a standard residential mortgage. Before you approach lenders, you may need to consider things such as progress payments if you’re planning on developing your property or that the commercial loan to value ratio is normally capped at 70%. Therefore, you will need to have access to more equity or a simply larger deposit if you are looking to invest in the commercial market. Your loan type will typically be shorter, so be aware that this will equate to larger repayments even on interest-only loans and valuation fees are typically higher on these properties.

  7. Informative!!!
    Great tips for those who want to invest in real estate industry. Commercial property has bigger returns than residential, one should consider these tips for investment. Thank you, I learnt a lot.

  8. Handrails, also known as banisters, are obviously important in staircases. Without them, of course, one might stumble while going up and down the stairs because it is where a person holds for support.

  9. Fantastic guide and Yes, It’s the most important thing that after investing in commercial real estate what you will get as a return. If you want to get return handsome amount as regular cash flow, then you just need to analyze the market properly. BTW, great article for beginners and thanks for sharing.Sell your home fast

  10. Hello, Thank you very much for post the article. Really, it’s very good. I learned a lot about this. I’ll try to apply your ideas and tips as well as possible.parc clematis

  11. This is some really good information about selling a home quickly. It is good to know that it would be smart to clean up your house as much as possible. I like that you pointed out that buyers most of the time don’t want to fix anything before moving into a new home. Personally, I wouldn’t even want to have to paint the walls.dimensions

  12. Hello, You should sell the mutual fund as soon as it goes up so you won’t have to go through one of those awful down markets. But you can count on that drop happening. Both the ups and the downs are part of investing. Over the years, the trend is up and almost all of the bad things get compensated.Real Estate Text Marketing

  13. When considering if you want to lease or buy, you have to consider ALL the variables, which varies by economic location. If I were to want to live in what anyone would consider a “nice” neighborhood… well, I don’t make $19/hr (thankfully I make more) but I still can’t afford to even dream about it. avoid foreclosure

  14. Any independent RE photographer who pays association fees to AREP will be paying their (the founders are tour companies and/or companies who sell to RE photographers) competition to regulate them. Think about it.Locksmith Fayetteville NC

  15. I really thank the author of this article, the article has great significance for me, it just leads me to do better things for this life. Very meaningful, thank you very much, wish you happy.locksmith 32225

  16. When considering if you want to lease or buy, you have to consider ALL the variables, which varies by economic location. If I were to want to live in what anyone would consider a “nice” neighborhood… well, I don’t make $19/hr (thankfully I make more) but I still can’t afford to even dream about it.Kampong Java

  17. I really thank the author of this article, the article has great significance for me, it just leads me to do better things for this life. Very meaningful, thank you very much, wish you happy,gutters raleigh

  18. I accustomed to run a company that needed me to create several cash transfers each week. Due in order to umpteen foreign currency fluctuations on the market, I needed to locate a viable platform that may afford me using the best settings of cash transfer assessment.malta real estate

  19. Mortgage payment consists of two parts: mortgage interests and mortgage principal. The interests portion is similar to rent. If you pay interest, it disappears and doesn’t add equity to the property. To fully simulate characteristics of renting, we assume buyer will apply for a zero down, interest-only loan.Malta Property

  20. Financial advisors are a great option, though one should probably accumulate a bit of assets before finding one to make it worth while. At the beginning, focusing on living below your means is still much more effective then trying to increase your investment gains.kinzo vanier

  21. Financial advisors are a great option, though one should probably accumulate a bit of assets before finding one to make it worth while. At the beginning, focusing on living below your means is still much more effective then trying to increase your investment gains.This site

  22. ” Financial Advisors ” …….Like in every field , there are A -1 advisors and mediocre or poor advisors . Many lack real knowledge and promote things where they ” earn ” a high commission . Before the market crashes , when it too high and irrational , I pull out of the market and bank the money . I have money in several different banks and over the years the banks ” financial advisors ” recommended that I have too much cash and should ” invest ” in Annuities . The problem is that they take a LARGE chunk of cash right off the top for themselves . I always hold cash until the market crashes and then I jump in and buy when everyone else has sold or is selling , therefore I buy Dirt Cheap . [ the year 2000 and 2008 ] Educate yourself and be cautious . I subscribe to numerous newsletters concerning economics and politics but I take everything with a grain of salt .

  23. When considering if you want to lease or buy, you have to consider ALL the variables, which varies by economic location. If I were to want to live in what anyone would consider a “nice” neighborhood… well, I don’t make $19/hr (thankfully I make more) but I still can’t afford to even dream about it.locksmith

  24. ” Financial Advisors ” …….Like in every field , there are A -1 advisors and mediocre or poor advisors . Many lack real knowledge and promote things where they ” earn ” a high commission . Before the market crashes , when it too high and irrational , I pull out of the market and bank the money . I have money in several different banks and over the years the banks ” financial advisors ” recommended that I have too much cash and should ” invest ” in Annuities . The problem is that they take a LARGE chunk of cash right off the top for themselves . I always hold cash until the market crashes and then I jump in and buy when everyone else has sold or is selling , therefore I buy Dirt Cheap . [ the year 2000 and 2008 ] Educate yourself and be cautious . I subscribe to numerous newsletters concerning economics and politics but I take everything with a grain of salt .Realtors

  25. Financial advisors are a great option, though one should probably accumulate a bit of assets before finding one to make it worth while. At the beginning, focusing on living below your means is still much more effective then trying to increase your investment gains.we buy houses maryland

  26. Financial advisors are a great option, though one should probably accumulate a bit of assets before finding one to make it worth while. At the beginning, focusing on living below your means is still much more effective then trying to increase your investment gains.sell my home fast baltimore

  27. ” Financial Advisors ” …….Like in every field , there are A -1 advisors and mediocre or poor advisors . Many lack real knowledge and promote things where they ” earn ” a high commission . Before the market crashes , when it too high and irrational , I pull out of the market and bank the money . I have money in several different banks and over the years the banks ” financial advisors ” recommended that I have too much cash and should ” invest ” in Annuities . The problem is that they take a LARGE chunk of cash right off the top for themselves . I always hold cash until the market crashes and then I jump in and buy when everyone else has sold or is selling , therefore I buy Dirt Cheap . [ the year 2000 and 2008 ] Educate yourself and be cautious . I subscribe to numerous newsletters concerning economics and politics but I take everything with a grain of salt .residence laval

  28. When considering if you want to lease or buy, you have to consider ALL the variables, which varies by economic location. If I were to want to live in what anyone would consider a “nice” neighborhood… well, I don’t make $19/hr (thankfully I make more) but I still can’t afford to even dream about it.raingo gutters

  29. I really thank the author of this article, the article has great significance for me, it just leads me to do better things for this life. Very meaningful, thank you very much, wish you happy.parc canberra ec

  30. ” Financial Advisors ” …….Like in every field , there are A -1 advisors and mediocre or poor advisors . Many lack real knowledge and promote things where they ” earn ” a high commission . Before the market crashes , when it too high and irrational , I pull out of the market and bank the money . I have money in several different banks and over the years the banks ” financial advisors ” recommended that I have too much cash and should ” invest ” in Annuities . The problem is that they take a LARGE chunk of cash right off the top for themselves . I always hold cash until the market crashes and then I jump in and buy when everyone else has sold or is selling , therefore I buy Dirt Cheap . [ the year 2000 and 2008 ] Educate yourself and be cautious . I subscribe to numerous newsletters concerning economics and politics but I take everything with a grain of salt .Pasir Ris MRT

  31. I really thank the author of this article, the article has great significance for me, it just leads me to do better things for this life. Very meaningful, thank you very much, wish you happy.malta property

  32. Mortgage payment consists of two parts: mortgage interests and mortgage principal. The interests portion is similar to rent. If you pay interest, it disappears and doesn’t add equity to the property. To fully simulate characteristics of renting, we assume buyer will apply for a zero down, interest-only loan.Twitter Marketing

Leave a reply

CommentLuv badge