Buying a business rental as an investment, pros and cons

You can purchase rentals for businesses as well as residential rentals.Business rentals have unique advantages and disadvantages.You will have to understand the market a little better and differently if you want to get into commercial properties.Additionally, commercial is not a basic need like a residential house so the risks can be very different too.

Commercial property can be very expensive and so you have fewer people that invest in this area.However, business rentals can also be very lucrative so you may want to put in the effort to position yourself to take advantage of this market.However, you will always have pros and cons in any investment strategy.Study the market and make a good decision.

Advantages of commercial property.
1.Long-term secure cash flow -- Commercial rentals normally have long lease contracts, with periods of 10 years and more being common.In addition to this, commercial property tenants are less likely to default on payments and even if the tenant goes into liquidation, the liquidator may continue paying the rent in order to stop the lease being forfeited.

2.Maintenance -- Commercial tenants are generally liable for the maintenance and upkeep of the property, contrasting with residential leasing, where the onus tends to be on the landlord.Once you have rented the property, you won't have to fix toilets and lights or other issues.However, the landlord is often responsible for the landscaping.You may want to cover that issue in the contract.

3.Income yield -- Commercial property tends to deliver a relatively high income yield throughout the rental period.In comparison, residential property investors rely on the capital value of the house increasing to generate a good return.This is fine during periods of rising property prices, but less beneficial during property down turns.

Disadvantages of commercial property.
1.Poor liquidity -- Compared to equities and bonds, property has poor liquidity, both in the time spent finding a buyer and making the transaction.This can be further emphasized in poor market conditions when the ability to find a buyer offering the right price will become very difficult.

2.Poor diversification -- The more diverse an investment portfolio, the less susceptible it will be to tough market conditions.Investing in a single property can be a risky challenge.

3.Market performance -- The property market is prone to cycles, as yields grow and decline depending on the level of supply and demand for commercial property.Current rental rates could decline in the future.A long term tenant may be able to stay in a property longer paying a low rent after rent has risen in an area.

4.Sector performance -- A decline in the sector that your property services could affect your investment.For example, a period of poor sales performance and market withdrawal in the retail sector could lead to the demand for small store, supermarket, department store and warehouse property to decline sharply.

5.High price of entry - Commercial property is very expensive.Hence, you must have a lot of capital to get involved or carry a very large loan.You may not want to have a large loan either because commercial property rents for long periods of time, but it can also be vacant for long periods when you are looking for a new tenant.

When purchase a piece of commercial property location will need to be considered.This includes the proximity to good transportation for customers and supplies.Also, building type will need to be evaluated.Often the type of building will determine your client base which will determine how well the building rents.

In summary, commercial properties offer some unique advantages and challenges.If executed well the profits can exceed those realized in the residential market.However, with greater profits also come greater risks.You will need to analyze your strategy and assets before investing in commercial business property.