The real estate business is quickly gaining popularity among passionate investors, especially those seeking large-scale capital investment. An example of a commercial real estate is a condo or a high rise. Why would you choose to invest in condos and high-rise ventures? Well, this is a question that silently looms in the mind of many people. What exactly are condos and high-rise?
In case you don’t know, a condo, commonly referred to as condominium, is a big complex that is usually divided into single units and sold to individual owners. When deciding whether to direct resources to commercial real estate, a critical demystification, and understanding of the scope, financial viability, break-even point, and profitability scale is a must.
However, the bone of contention remains in determining whether commercial real estates are still lucrative ventures or not.
What we know
The construction industry has slowly transcended from building single-use home-based houses, into shared commercial spaces. People prefer to own spaces while sharing other amenities such as walls, parking, security, and land.
Arguably, many people who subscribe to the benefits of real estate’s maintain that it is cheaper than building a private apartment. Therefore, investors who are vested in more diversified as well as balanced capital real estate enterprises choose to satisfy the niche.
Uses of commercial real estates
The conceptualization or real estate as a commercial capital investment stems from the need for people to share spaces such as offices, workspaces, virtual offices, and homes. Many corporations, industries, single enterprises, and start-ups prefer to rent commercial offices instead of building their own. As such, commercial real estate investors target such clients who are increasingly on the rise, especially start-up and sole proprietorship ventures.
Notably, commercial real estates, such as condos, have been gaining popularity alongside family homes in the same category in the last two decades. However, shared offices, workspaces, virtual offices, and conventional offices have been there for a long time.
Investing in Commercial Real Estate
Ostensibly, capital investment in commercial real estate exists as a potentially highly lucrative enterprise. Additionally, commercial real estates serve as a hedge against the fluid and dynamic nature of the stock market. Investing in commercial real estate provides an opportunity to make money by selling property, renting, and leasing the spaces.
Additionally, investing in commercial real estate has its value always on the rise since it appreciates with time. Therefore, the investors make more money when they sell the properties. However, most profits, which are steady and long-term, stem from rental arrangements. So how can individuals invest in the commercial real estate business?
1. Direct investment
Investing in commercial real estate enables the owners to become landlords through the fiscal ownership of the actual property. The most suitable people who have high stakes in commercial real estate are those with vast knowledge and possess substantial capital investment or a source of the same. Others with similar capabilities are those who can outsource or hire other firms.
Notably, direct investment in commercial properties entails high risk as well as high reward capital conceptualization. Therefore, such investors are high net-worth people since commercial real estate calls for colossal amounts of financial overlay. Notably, for an individual investing in commercial real estate to make more lucrative returns, they need to target high demand and favorable rental areas; the local economy notwithstanding.
2. Indirect investment
Since commercial real estates require massive capital investment, an individual may still venture into the trade indirectly. It may include owning market shares and securities in the line of Real Estate Investment Trusts (RIETS) and exchange-traded funds. One may also invest in firms that facilitate commercial real estate such as realtors, financial cooperatives, SACCOs, and banks.
Advantages of commercial real estates
Individuals, as well as groups of people, choose to advance in commercial real estate because of the overall value for money ensuing capital investment. The most significant merit emanates from attractive leasing rates. Here, areas with the highest potential for considerable monthly cash flows include where new construction remains limited by land or laws. While industrial buildings rent at lower rates, they have lower overhead costs as compared to leasing an office tower.
Longer lease terms in commercial real estate also accrue more benefits for investors as compared to residential ownership. Here, the concept of a considerably more extended duration of contract creates a more stable amount in returns concerning cash flows.
Additionally, commercial real estate features capital appreciation if the property is well managed and maintained. The property can be sold at considerably higher rates later. With regard to the stock market, commercial real estate remains stable. The merits mentioned above notwithstanding, others include:
- Hedge over stock market shares investment.
- Lucrative incomes.
- Longer and more stable cash flows
Disadvantages of commercial real estates
While the investment in commercial real estate is arguably a highly profitable and stable source of income, they also present a few hurdles. There are stringent rules and regulations within the context of labor and land laws affecting this lucrative venture. The imposed taxes, purchasing mechanics, and accrued responsibilities such as maintenance costs of the commercial investment properties are daunting.
However, they vary with the state, county, the size of the investment, and zoning, among others. Therefore, investors require a vast knowledge of risk and hurdles mitigation or employ people with the requisite experience.
Other challenges include:
- Need for huge capital investment.
- Higher and more stringent regulations.
- Constant and high renovation costs.
- Illiquid asset.
- Slow commercial transactions
Investment in commercial real estate is considered by many to be a highly lucrative venture. Investors target people and firms that seek to minimize operational costs. As such, the construct buildings with offices, shared workspaces, virtual offices, and family-based setups such as condos. These facilities offer a significant return on investment through renting, selling, and leasing the property.
For long term leasing, the investors generate steady and prolonged income. However, some demerits include high capital investments, stringent laws, slow transactions, high maintenance, and renovation costs. All in all, commercial real estates are very lucrative if done right!