It is not debatable that investing in commercial property will give you more income potential over investing in residential property. Since commercial property will be built on a street that located in the commercial zoning in the city, the rental price will be designed to fulfil business purpose. Thus the price will be higher.
The same is happen as if you want to resell the commercial property. Since the property is located in commercial zoning in the city, you will get more money in return. Just like the income potential return stated previously, you will get return for about 6% to 12% annual return of the purchase price.
Income Potential Return
Beyond of the income potential return you would likely get, you will also face many negative issues in accordance with owning the property. You also have more risk when you build the building in a developing area, such as for retailer store. If your prediction fail, the building will be left unoccupied. No tenant want to rent a store with no or less potential business. See also how to make profit from properties https://stevenclarkerealestate.com/how-to-profit-from-real-estate/
Issues with Commercial Property
These are negative issues you have to deal with when you consider to take commercial property for investment:
- a) More initial investment: Unlike acquiring a residential property, you need to spend more initial investment in order to acquire property in commercial zoning. The high price in the initial investment come from the price of the land used to build a building on it.
The large expenditure to follow when you acquired the property will come from the maintenance cost to repair some part of the building. The part like roof or a new furnace will need to repair anytime in the future. To repair the roof or replace new furnace you might spend $10,000. If you have more customers, you will likely have to spend more costs to repair the facilities.
- b) Higher and various risks: Commercial properties will have more public visitors daily. Thus this may lead any damage to the properties by irresponsible people or maybe accidental act like cars hit parking lots patrons. You also have to prepare some money if someone get hurt while visit the building like slipping on the ice during winter in your storefront.
- c) Time commitment: Unlike residential property landlord, you cannot be an absentee owner who hoping get annual income return on the investment. You have to deal with annual Common Area Maintenance (CAM) adjustment cost which will be the tenants’ responsible, maintenance issues, multiple leases, and public safety issues.