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If you ever have been a landlord for
residential property, I am sure that you get complaints from
tenants about leaking roofs in the middle of the night. But
what keeps most people back from investing in commercial
real estate is the fear of the unknown since not many of us
are born commercial landlords. However we can learn from
Donald Trump who spent his energy developing large office
complexes and that’s where he made his money. This article
will highlight three reasons why commercial property real
estate investment is better than private real estate
investment. Reason #1: Rental Yields may be better for
commercial properties For
commercial property like shop
space, the rental yield that you can command depends
directly on the human traffic in the area. Thus if you
invested money in such a property investment, the monthly
cash flow would be more than an equivalent costing
residential property investment in the same area.
In addition, most business owners when they come to view
your property have already identified your street as a good
one for their business in terms of human traffic and usually
want to start renting from you, thus you have the upper hand
in negotiations. Contrast this to most residential tenants
who have a huge variety of properties to choose in your
vicinity and if they do not like your property or your
rental they can just as easily go to another property.
Reason #2: Improvements on the property Business tenants
generally treat properties different from residential
tenants. A business owner who is renting property would
generally fix small defects in the property so that he can
carry on business and would not bother the landlord about
such small problems. But additionally, most small business
owners would generally carry out small improvements in the
property that could boost the property value of your
commercial property.
An example of this could be the installation of a PABX
System and wiring up the whole office for a local area
network. This could save your new tenant a lot of time and
could be used to give additional value to the terms of the
rental that you are providing.
Another example I heard recently involves office
partitions. Law firms and accountants generally have the
same set up in their offices and when law firms move, they
generally would have to spend money renovating so if you
have existing partitions in your commercial property, you
might be able to get a whole professional firm over to rent
your property. Note in contrast, in most residential
property, tenants tend to love to puncture holes in walls
without permission, repaint certain rooms and at the end of
the lease and as a result most landlords have to do lots of
repairs just to return the property into its original
condition.
Reason#3: Rental Collection
Typically there are some tenants that are not very prompt
with their rental payments and therefore the ability to
choose tenants who would pay would save you lots of money
and make you even more in the longer term. Imagine having to
loose a few months of rental payment and spend money on
lawyers to evict the defaulting tenant from your property.
If you have a commercial property, you can choose a
tenant that has lots of goodwill established in your
premises. This would mean that the tenant has a lot vested
in your property and would therefore pay his rent on time to
stay out of rental disputes. Contrast this with a
residential property where the tenant can run away without
paying your monthly rental and has nothing very much to
loose. Collecting rental from residential tenants seems to
be more difficult as well for some strange reason.
In conclusion, this article has highlighted three reasons
why commercial property real estate investment may be better
than private real estate investment. That said, making money
with real estate is like value investing in stocks, the
profit is made in the buying. The time spent looking for a
good property will reap its rewards later in the form of
good rental yield and capital appreciation over time. Take
massive action today and look for the real estate investment
property that you think meets your real estate investment
needs.
Joel Teo takes a keen interest in real estate investment
as part of a larger investment portfolio. For more tips on
real estate investing check out our
real estate investment success series at our
real estate investing resource.
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