Everyone has always heard that real estate is a good investment. But just everything else in life commercial real estate has its ups and downs. Commercial real estate has the potential to make a lot of money but there are some responsibilities that go along with your property.
The Upside to Owning Commercial Property
Commercial real estate has the potential to bring in more money than other types of real estate. The average property can bring in an annual return of 6-12 percent of the purchase price. This is a much higher return than any other type of real estate, including the return on a single family home. As a business owner, retailers that rent your property care more about the appearance of your property. This means that the people who lease the property have a vested interest in keeping the property clean much more than residential renters. As a commercial real estate owner, there is a potential for “triple net leases,” which means that the owner of the property does not pay anything except the mortgage. The residents (business) pay for the property taxes.
The Downside to Owning Commercial Properties
One of the biggest downsides to owning commercial real estate is the time commitment. You will be dealing with maintenance issues, public safety concerns, and other upkeeps to the property. The more properties you own, the more time you will be spending take care of the needs of your renters. Because of city codes, this job is not for the average do-it-yourselfer. These fixes need to be up to code and professional. Just like everything else, these buildings will need a lot of repairs and this means making friends with your repair person. If you choose to hire a property management company, remember that many charge between 5-10 percent of the rent for services. The costs required for your commercial properties will be much higher than buying a single family home. The initial investment as well as any maintenance will be higher than the average place.
The biggest downside of all is the risks involved. Commercial properties have a higher potential for loss because of the amount of people coming and going from the property. If you think of all the damage people could do to your property or on your property, it can be scary. Cars could hit patrons, people could slip on ice, and vandals could tag your building. All of these things rely on factors you cannot truly control; however, preventative measures can be taken. Security cameras can be installed for vandals and a building maintenance company can be hired to take care of the parking lot.
When looking into buying into real estate, it is best to know all the facts before getting in over your head. If you are not prepared to devote the time, money, and energy into this property, it would be best to invest elsewhere.
At Clagett Enterprises, we have extensive experience serving the greater Frederick area and Western Maryland, since 1987. Our team is a full service real estate company that’s ready to help you with your real estate needs. Speak with a Clagett professional at 301-665-6009, or request a proposal for preventive maintenance here.