It is not easy to take decisions pertaining to investments in real estate sector. It is very complex to take a decision on whether to invest in residential real estate or commercial. Popular feeling among people is that only corporate bodies would be able to invest in commercial realty. In fact, it is true, but not always.
Commercial property, especially shops and show-rooms, can be acquired by even wage earners too. Investments in commercial real estate have grown lucrative because of the stable income one gets from it and its high rental value. The growth prospects of commercial reality are very high and flow of money from it would be constant. That is why; making investments in commercial real estate became popular with investors. You are bound to make an investment in commercial property once you consider the benefits of investing in commercial reality.
High rental income
Commercial real estate commands high rental income compared to residential real estate. Average rental income from commercial property varies between 8 and 11 per cent of the property cost. However, the residential rental income is comparatively less by at least 4 times. The rental income would be only 1 to 2 per cent of the residential property value. Income from commercial property varies from region to region. If earning money through rents is your choice, making investments in commercial reality is undoubtedly a sound decision.
Zero expenditure on furnishing
One of the attractive features of the commercial realty is zero expenditure on furnishing of the property. Once the property is taken on lease, the cost of furnishing the property should be borne by the person taking the property on lease. The owner’s duty is to handover the property to the party, the person who rented it will take care of the furnishing the property.
Easy dealing
Those who rent commercial property include well settled companies. Dealing with corporate clients will always be facile. There would be no problem to chase them for collecting monthly rents. If a reputed bank or corporate client takes the property on rent, the demand for the property increases and also the monthly rent.
What about the losses?
Commercial property is given on lease for periods ranging between 10 years and 20 years. There is always scope for renewing the property. The annual lease agreements provide for increasing the rent on annual basis. As a result, commercial property enables its owner earns a stable income. But, there are other disadvantages of buying a commercial property.
High initial costs
The commercial property demands more initial investment. Compared to buying residential property, one should spend more to acquire commercial property. In this backdrop, other economic needs and commitments should be taken into consideration before making huge investments. The commercial investment is normally out of bounds for the average retail investor.
Loans become costlier
Loans advanced to purchase commercial property vis-à-vis loans given to purchase residential property are costlier as they command a higher rate of interest. It is a great disadvantage for investors of commercial property. Moreover, the loan comes with many conditions and rules depending on the nature of the property, profile of the investor and capacity to repay the loan.
Complexity in management
Matching the commercial property with suitable renter is always difficult to a greater extent compared to giving a residential property on rent. Only corporate companies constitute the commercial real estate renters. Similarly, retail investors will have no professional skill in managing commercial properties.
Thorough background search is necessary
The investor should conduct an extensive research on the total cost of the acquisition of the property, the incidental taxes, zonal regulations, by-laws governing the renting the commercial property and make suitable efforts to locate the asset geographically. In this backdrop, investing in commercial property is very difficult.
Tax problems
Making investments in commercial realty through partial management concept is still in a nascent stage. That is why there are no clear cut guidelines in this regard. If you have a commercial property and if you happen to rent it out, the rental income from such property would be subjected to tax by authorities considering it as revenue from other sources.
