When it comes to joining a rental industry, you need to keep in mind that the residential property isn’t your only choice. Sure, renting out residential homes is the first thing that comes to one’s mind when buying a commercial property is in question, nonetheless, opting for a commercial property is just as viable of an option.
Still, this is a business decision and like any other business decision, it has its pros and cons. With that in mind and without further ado, here are four important factors to keep in mind when making this decision.
Buying vs. leasing
One of the biggest problems with leasing a commercial property in order to start your own business lies in the fact that you don’t ever really own the place. Let’s say that you have to make a major alteration to the area. You have to ask for special permission from the actual owner of the place and this is a permission that you won’t necessarily get. Second, there’s a risk, at any moment, that your landlord may ask you to leave or they might just refuse to renew the contract once it expires. By buying the place, you’re actually investing in the long-term reliability of your business.
Different types of property
The very term commercial property is a huge topic and there are many different types of commercial property that you’ll have to cover. For instance, you have offices, retail stores and shopping centres, warehouses, factories, hospitality industry venues and even healthcare facilities. Depending on the type of property in question, you’ll have to adjust your expectations, aspirations and even your property management plans. Another factor that affects this is the location of the property in question. Buying commercial property in a major business hub can drastically increase the demand and substantially lower the downtime. So, it would be best for you to start looking to buy commercial property in Sydney.
The return
The first thing you need to understand is the fact that you might buy a commercial property with the intention of renting it out. If that is the case, what you need to understand is the peculiar way in which these returns generate profit. For instance, when it comes to rental property, you need to understand that they are expected to return 1 to 2 per cent per month. Nonetheless, when it comes to commercial property returns, they bring you about 4 to 5 per cent per year. While this may sound like a lower return (percentage-wise), the truth is that the cost of rent for commercial property is a lot higher than when it comes to a residential one.
The tenant
The last thing you need to keep in mind is the fact that while it’s fairly simple to find a tenant for a commercial property. This is a double-edged blade. First of all, you usually get a single tenant, which means that you get to collect a single rent payment per month. This is a major payment and if they fail to make it, you might find yourself in a much worse financial situation. On the other hand, screening a tenant is a lot easier if the tenant in question is a company and not an individual.
In conclusion
In the end, you also need to bear in mind that a commercial property usually tends to be more expensive than a residential property (again, there are exceptions to this general rule). This means that you’ll need a heftier starting capital, which is definitely something that you don’t need in your life. Simply put, just try to do your research on the subject matter before you decide to go all in.
