Whenever you mention real estate investing, the image that generally comes to mind is of a landlord or house-flipper. But is that what it really meant?
The fact is that there is a completely different side of the market to consider in commercial real estate investment. However, going into the real estate business is sometimes not as easy as you may think.
If you have thought about expanding your holdings to include commercial properties like Amandeep Khun-Khun has, there are some important things to think about before you dive in.
Residential vs. Commercial Properties
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It can be a bit confusing at first if you don’t know the difference between commercial property and a residential one. There are advantages and disadvantages of investing in commercial real estate you should know.
To start with, look at what kind of tenant the property appeals to. Businesses generally lease commercial properties, while individuals and families lease residential real estate.
However, when the number of families in a building rises, the definition changes; if a residential building has five or more units, it is considered a commercial property.
Therefore, properties like single-family homes, condos, duplexes, and fourplexes are residential. But other properties like larger multi-family apartment buildings, hotels, retail, industrial, and office buildings are commercial.
Types of Commercial Properties
There are a number of types of commercial real estate available. Consider the list below to decide what you would prefer to own before jumping into the market.
- Retail properties, which include restaurants, shops, large big box stores, and malls, all of which cater to consumers.
- Office buildings, which cater to any type of non-retail business that does not have a storefront.
- Industrial structures, which include any building where goods are produced, stored, or shipped.
- Hotels, inns, motels and cabins, may require more hands-on involvement, depending on your business structure.
- Educational buildings and medical facilities.
Your Investment Goals
Now that you know what you want to invest in, it’s time to establish just what your goals are. First off, decide what level of risk you are able to take on.
If you have a high-risk tolerance, maybe you want to look at a higher short-term return. However, if your risk capacity is lower, it’s probably better to look at a long-term and slower growth investment.
Good Investment Practices
It’s obviously important to look for a property that is likely to increase in value, and not just due to the inevitable appreciation of the land it’s on.
Also, you should check if there is a plan for other developments in the area. Such developments can include a new metro line or other infrastructure improvements.
Other stuff you can look out for include plans for large retail centers. Not only that, but you can also look out for entertainment facilities that may cause an increase in population and popularity.
The Common Mistakes
The most common mistake made by new investors is underestimating what a property cost is. You must consider the condition of the property and required repair costs before buying a property.
Rent might be too low to cover these expenses, and you could end up losing money. In addition, it’s crucial to double-check if the previous landlord’s reported income is accurate.
You can get an accurate assessment of the investment potential from a trusted real estate agent. Investing in commercial real estate can be an incredibly rewarding path.
However, there can be a lot of challenges along the way. Therefore, you have to make sure you do your due diligence on any new property before making that big investment.