Exploring Comercial Real Estate Investments

Any property that has the potential to generate income now or even in the future is classified as Comercial Real Estate. This extensive industry includes property types like agricultural lands and farms, buildings, retail properties, golf courses, office properties, shopping centers, duplex, hotels, motels, and even vacant lands.

Among other property investing alternatives, commercial investments offer 2 key advantages:

Long-term Income
Most leasing contracts of commercial properties are signed on a long-term basis, reaching from up to 5 to 10 years. As an investor, there is no need to look for tenants regularly. More importantly, you are assured of your income for the period covered in your leasing contracts. Also, earnings from these investments are generally higher compared to residential real estates in the recent years.

Low Maintenance
Expenses incurred in maintenance and repairs are shouldered by the tenants of the property. When you engage in residential leasing, on the other hand, investors have to pay for these expenses.

Then again, every real estate investment has its own negative aspects. For one, commercial real estates are heavily dependent on prevailing market conditions affecting different business industries. When US Retail Industry, for instance, experienced a slump few years ago, tenants were compelled to terminate their contracts while others filed for bankruptcy. This resulted to severe losses for some commercial properties.

Similarly, the growth of call center industry in the Philippines prompted many commercial property investors to buy or develop new buildings to house hundreds of call center agencies and thousands of call center agents.

To minimize the risks of investing in commercial properties, you must carefully consider the following conditions:

Location
When ask what is the most important element in the business, retailers and wholesalers are one in saying it is all about location, location, and location. Indeed, this requirement determines the value of the property and the corresponding retail rates you can set for your tenants. When choosing location, keep in mind your customer needs. If you are into retail properties, take time to talk to two or more potential tenants and identify their important considerations.

Generally, a good location for commercial properties must have low crime rates, access to public transportation, large population, parking space, few competitors, and within the business zones. Get hold of Census Bureau data to establish the demographics of your area.

Market Factors
The real estate industry is very dynamic so you must keep up with these changes. Monitor your competition and study the future directions of your preferred location. For instance, a commercial property appear very feasible today. What if there is a major change in zoning or construction of bigger commercial real estates in the next five years? What will happen to your investment? Be forward-looking all the time and anticipate these dramatic changes. One of the best sources of information is to talk to your government agencies and ask for their long-term development roadmap.

Every time you plan to buy a comercial real estate or engage in any property investment for that matter, make sure you develop a financial feasibility study to support your decision. You might get a good location but if the current cutthroat competition consistently drives rental rates down, you might end up losing.