Can You Make Money From Commercial Property Investing?
When most people think of investing in the property market, they think about homes. But the property market is much bigger than private dwellings: it includes anything that can be classified as a building and sometimes, land itself.
Making money from property is usually considered a fool’s errand: after all, many people who bet that house prices would continue rising indefinitely before the financial crisis wound up getting burned.
Investing in commercial property, however, is different from just buying a house and hoping for the price to rise. When you purchase commercial premises, you’re buying something that can generate a productive return (so long as you find the right tenant). Commercial property for sale offers many advantages for people looking to make a little bit of money on the side. It’s a way of diversifying your portfolio and not relying on stocks and bonds to make a return.
Commercial Property Investing: The Basics
The commercial property market is primarily shops, warehouses, retail outlets and factories. It’s anything that businesses want to rent to conduct their operations. If you own all or part of commercial premises, the company pays rent to you, and you stand to profit, so long as you can make enough money from it to cover your costs.
And here’s the problem with commercial property investing: the costs. Not only do you have to service a mortgage to a bank (if you took one out) but you may also be liable for maintenance which could cut into your profits. Making money from letting out commercial property isn’t as easy as you might think.
What Are Real Estate Investment Trusts? Are They Worth It?
Many people think that the way to make money from a commercial property is to buy it outright and then lease it to tenants. But this is actually a mistake, especially for small-scale investors. The main issue is one of risk: when you put all your money into one asset, you’re reliant on having reasonable occupancy rates for the time that you own it.
Of course, high occupancy rates and tenants paying on time can’t be guaranteed, so commercial property doesn’t seem like such a good way to make a side income after all. That is until you start using real estate investment trusts to diversify risk.
Real estate investment trusts are a way of owning property without having to do any of the management yourself. What’s more, you invest in a share of a basket of real estate assets, not just one individual shop.
Of course, there’s no such thing as a free lunch. If you do decide to invest in one of these products, you’ll have to pay a management fee and your overall returns may not be as high as if you buy outright.
That then begs the question: when should you invest outright? If you do decide to buy a commercial property, you want to buy one in a location that’s likely to see sustained business demand. Over the long-term, your premises should be filled for long enough to provide you with a decent return.
Thinking of Buying a Property?
Here are some useful posts that may help you on your property investment journey.
- How to Save for Your First Home
- 3 Tips For Getting Into The Real Estate Market
- Tips To Help You Make Money from Real Estate
- 3 Signs You’re Ready to Buy an Investment Property