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Pros And Cons Of Investing In Commercial Real Estate
Real Estate Investment in India is always considered a good type of investment, be it commercial or residential. Among all, commercial investment definitely yields more monetary benefits. Return on investment from commercial spaces is much higher than residential spaces. But there are risks too.
WHAT IS A COMMERCIAL REAL ESTATE PROPERTY
The properties that comes us commercial real estate properties are –
Retail buildings
Office buildings
Industrial buildings
Apartment buildings
Warehouses
Buildings which have retail, office and even apartments.
PROS OF COMMERCIAL REAL ESTATE INVESTMENT IN INDIA
Higher rental income – The rental income in a commercial property is higher than in residential property. There are several reasons for this. As people use commercial spaces for business purposes, they tend to be more valuable than residential spaces. On top of that, many commercial properties are large & capable of hosting multiple tenants simultaneously which multiplies your income potential.
Triple net leases – In commercial real estate, many of your arrangements will be with a triple net lease. Triple net lease is where the tenant will be responsible for all the expenses related to the property, including real estate taxes and maintenance. This can greatly reduce your cost and help you make more money with less responsibilities.
Zero furnishing cost – One of the advantages of commercial real estate is zero furnishing cost. Once you rent it to a tenant, the furnishing costs are done by them. As an investor, you can give your tenant a raw property. This advantage is because any company who is renting the property will have to be following their set rules & guidelines. For instance, a bank will have a particular design, while a department store will have a completely different design.
Regular inflow of income – Commercial properties face more regular and consistent flow of income than residential properties. In case of commercial properties, the rental is mostly assured as there is a longer duration of lease.
Logical & steady pricing – Business owners usually make more rational financial decisions. They focus on economic logic and long term profit ideas rather than conforming to the whims of the market. That is why the prices of commercial real estate are a bit more stable and predictable at times, especially when compared to residential real estate.
CONS OF COMMERCIAL REAL ESTATE INVESTMENT IN INDIA
Complicated lease terms – While there’s little variation between residential leases, the difference between commercial leases can be huge, with pretty much every term up for negotiation. Consequently, commercial investors have to work very closely with their lawyers when drawing up a lease.
Time requirements – Commercial real estate requires more care and hard work than residential properties . You will need to become familiar with local laws and regulations. You need to inspect properties thoroughly before buying. This means spending much more time on commercial real estate.
Fewer tax incentives – Investors of commercial properties have very few tax incentives. There is no tax rebate or tax benefit on the EMI for repayment of loan for acquiring the commercial property. This indeed is one of the biggest disadvantages of commercial property.
More risks – There are also bigger risks associated with commercial real estate. More money is at stake. You will be working with bigger, more important tenants and there is always the possibility that a commercial area faces a dramatic bad fall. Other than this, there are scopes of accidents with so much public around. A gang of rowdies can spray paint on one side of the property, someone can hurt people intentionally, some group of strangers can damage spaces too and the most scary risk is the damage done by terrorist attacks, which are very common these days which hurt both the building and public. Chances of all these are more in commercial properties than residential ones.
If you are new to real estate investing, commercial real estate can seem to be risky and complicated. However with the right team of advisors and managers on your side, almost anyone can enter and reap the rewards.
Are you considering a real estate investment to grow your money? Do you consider it as a profitable investment option? Share your views with us in the comments below.
