Real estate is one of the oldest and most secure investments you can make. After all, unlike cryptocurrencies or stocks, you have something ‘real’ backing your investment. While real estate markets will fluctuate in the short term, real estate is guaranteed to appreciate over enough time. If you’re wondering, “Is commercial real estate a good investment?” keep reading. The commercial real estate property managers here at TAFCO Realty Corp. have broken down the benefits of investing in commercial real estate, how to get started in commercial real estate investing, and whether or not you may need a property manager.
Is Commercial Real Estate a Good Investment?
If you’ve been investing in residential real estate for some time, or even have yet to start investing in commercial real estate, you’re likely wondering “Is commercial real estate a good investment?” You might be wondering if now a good time is to start, or whether you should wait.
Typically, commercial properties can offer more financial return than residential properties. It’s no secret investing in commercial real estate boasts significant earning potential. Commercial properties generally have an annual return of the purchase price between 6% and 12%, depending on your buildings and where they’re located. Residential may only return 1% to 4% annually.
Commercial real estate can also be lower maintenance than residential real estate. If you hire a real estate property management company in Kelowna, they can take care of the day-to-day necessities, so you can spend your time on what’s important to you.
Read more on our previous blog: Responsibilities of a Commercial Property Manager
Commercial tenants may be more difficult to find, but they usually stay for much longer. Long-term leases (3-5 years) are common, whereas even a 1-year lease can be a substantial commitment for a residential tenant.
Finding financing can also be easier for commercial properties since more weight is placed on the quality of the building rather than the borrower. When applying for financing, financial institutions will typically assess the value of the building, the average revenue it produces, and the tenants.
How to Get Started in Commercial Real Estate
Getting started in commercial real estate doesn’t have to be difficult, but it does require a larger percentage down payment. Typically, down payments of 25-35% of the property are common and can help your building increase it’s cash flow. If you have a sizeable down payment sitting in your bank, investing it in commercial real estate can be easy. It can also yield a much larger return on investment than leaving it in a high-interest savings account at your financial institution. As previously mentioned, an annual return on your investment could be between 6% and 12%. Chances are your bank isn’t offering you a 12% return on your money.
Getting started in commercial real estate starts by either finding capital or a good deal. If you can find an attractive deal, the equity will be there. If you don’t have a deal and are worried a property you’re looking at will get a high valuation from your lender, finding a patient source of capital should be your priority. Ensuring you have both these factors will line you up to be successful in commercial real estate investing.
Is it Worth Having a Commercial Property Manager?
One question a new investor often wonders is, “Is it worth having a commercial property manager?” Having a commercial real estate property management company can save you time, resources, and even add value to your investments. Having a real estate property management company working for you means you can truly convert your investment into passive income. That means no interviewing tenants, no early or late-night calls to emergency repairs, no keeping track of complaints, and more.
In addition to taking care of menial tasks for you, real estate property management companies can add value to your investment by knowing the market. How much is your property really worth? This can be a more difficult question to answer for commercial properties. With property taxes, building materials, water, and other expenses slowly on the rise, it’s important to increase your rent if the market allows for it. However, asking too much for your commercial space could make it difficult to find a quality tenant. A real estate property management company can help you find the right asking price and help you know when, and how much to raise rents.
TAFCO: Real Estate Property Management Services Since 1988
Here at TAFCO, we’ve been providing the Okanagan with real estate property management services for over 3 decades. If you’re wondering “is commercial real estate a good investment?”, contact our team today. Our experience and expertise mean we can help you get the most value out of your commercial real estate investment. Whether you’re looking for commercial property management, sales or leasing, we’re up to the task. Get in touch with our team today to find out how we can help you maximize the value of your commercial real estate investment.