June 12, 2018
Investing in commercial property is a great idea for anyone who has ever thought that they would love to answer only to themselves while earning a little passive income. Once the property has at least one tenant it will start to generate a little money every single month without any additional input. All that is required is some general upkeep and maintenance from time to time.
So while it is clear that investing in property is a wise move the question is whether it is better to utilise this investment by buying a residential or a commercial property. Usually, for most landlords, it is a much better idea to buy commercial property. Here are 5 reasons why.
- Greater Potential Earnings
Investing in a commercial property usually allows for a much greater earning potential than any residential property. This is particularly true in the event that you are able to invest in a commercial property which contains multiple units that can be rented out individually to various businesses. Generally speaking, a well located commercial property will generate around 6% of its value in rent each year and this can rise to as high as 12%. This means that within a decade a commercial property can have paid for itself purely in terms of rent, not taking into account any future profits that may be made in the event of a resale.
- Low-Risk Income
If you were to rent a residential property out to tenants, there are always risks involved. You could find yourself suddenly having to deal with failed rental payments or a sudden end to the tenancy agreement. While renting out commercial property is not entirely risk-free, the risks involved are lessened. For starters, commercial rental agreements tend to be a lot stricter than those agreed to by residential tenants. Also, you can divide the risk by having multiple businesses renting separate spaces within the same property.
- Reduced Maintenance Work
When renting out a residential property you are effectively on call 24 hours a day and 7 days a week to come and fix one issue or another. This can be subverted by hiring a property management company but that involves incurring yet another expense. Meanwhile, most businesses only operate during regular business hours. This means that any issues are likely to come up and be dealt with at a reasonable time of day rather than the middle of the night. Not only that, but it is not uncommon for a commercial tenant to employ their own professional maintenance team to look after their space and deal with any minor issues that may arise.
- Higher Quality Tenants
It goes without saying that the majority of residential tenants are responsible people who will do their utmost to look after the property they rent and take good care of it. Most will be happy to abide by any rules, and when their tenancy does come to an end you will find it has been left in much the same state as it was given to them. However, this is not always the case and there is little worse than a destructive tenant. The fact of the matter is that commercial tenants tend to be even more reliable and the risk of this kind of damage to your property is much less with a commercial rental than a residential one. This is because the appearance of their business matter to their clients or customers so there is a much stronger incentive for them to look after it.
- Longer Contracts
A residential tenancy is likely to have a contract that lasts from 1 to 2 years, maybe longer. On the other hand, a business is going to want to keep the same space for as long as possible especially as their customers get used to their location. A residential tenant is always going to be looking to move onwards and upwards and may leave at any time. Commercial tenants need the stability that comes with staying in one place for a long time in order to let their business flourish.