Commercial real estate investing is something that even many professional real estate agents regard as being intimidating when they buy their first property. However, while it may be true that commercial real estate investing is complicated, it can be very lucrative as well. The truth of the matter is, you don’t have to learn everything about this business sector in order for you to be successful. You just need to learn the basics on cap rates, tenants, risk, lending and leasing. Before you decide whether this investment route is right for you, it pays to understand the unique pros and cons that are associated with commercial real estate investing so that you can decide if you’re ready to juggle the risk vs rewards.
The Opportunities of Commercial Real Estate Investing
1) Limited Hours Of Usage
Most businesses close down by nighttime. As such, commercial real estate property owners can rest easy at night knowing that they won’t encounter a situation where they receive an early morning call because a tenant lost their keys. In addition to that, commercial properties usually feature an alarm monitoring system which will notify the authorities if anything occurs at night time.
2) Unique Asset Security
Commercial real estate has been regarded as being one of the few investments that operates like a hard asset which has intrinsic value. This means that both the structure and the land it resides on have value. By choosing the right asset quality and location, investors will be able to benefit from knowing that the asset has the potential to earn significant income regardless of the success or failure of the tenant. As a result of this, commercial real estate investments doesn’t fluctuate like the volatility of the stock market.
3) Tax Benefits
You stand to gain several tax advantages by purchasing commercial property. For starters, the interest commercial property owners pay for their mortgage is deductible. What this means is that the interest payments that are paid on the mortgage, over the course of a year, can be deducted from the total amount of tax that you owe. In addition to this, non-mortgage related expenses such as landscaping services, maintenance, ongoing upgrades and renovations can also be used as deductions.
The Risks of Commercial Real Estate Investing
1) Business Liability
When you rent your property out to companies, you inherit the risks that come with those companies. For instance, if a company hires a contractor to remodel their section and fails to pay them, that contractor can place a lien on the company and on the property itself. In addition to that, if a company fails to pay sales taxes, that can be levied against the building itself.
2) Economic Conditions
Evidently, people will always need a place to live. However, they may not always need space to conduct their business. When the economy dips, the commercial real estate market suffers. During economic downturns, many businesses go bankrupt leading to numerous vacancies.
Speaking of vacancies, statistics indicate that commercial properties take much longer to lease than residential properties. In fact, some commercial rentals sit vacant for years and even decades. Therefore, long vacancies can prove to be a huge burden for investors who don’t prepare for the fact that lengthy vacancies go hand-in-hand with the commercial real estate market.
Is Commercial Real Estate Right for You?
Even if you understand its unique risks and opportunities, investing in commercial real estate can still be an intimidating prospect. It helps to work with a real estate agent whose expertise can guide you to make the best investment. If you’re considering buying commercial real estate in Lockhart TX, contact us at Lone Star Realty. Our expert agents can help make the process much less stressful and daunting.