Cons and XCons of Commercial Real Estate Investment

Commercial Real Estate Investments

Any type of property, whether it’s commercial or residential, can be a good investment opportunity.   Commercial properties typically offer more financial reward than residential properties, but there also can be more risks. Understanding the full pros and cons of investing will help you make the decision that’s right for you.

Matt Larson does a nice job listing the Pros and Cons in his article Pros and Cons of Investing in Commercial Real Estate. But let us take it a step further. Let’s focus on the Cons and the steps to actually mitigate or eliminate those obstacles by making them XCons.

The XCON in Commercial Real Estate

The below table lists just a few negative issues and the XCON steps to mitigate them:

Cons of Commercial Property XCons
Time commitment.  When you own a commercial retail building with several tenants, you have more to manage than you do with a residential investment. You are likely dealing with multiple leases, annual CAM adjustments (Common Area Maintenance costs), more maintenance issues, and public safety concerns. Bottom line, you have more to manage. Acknowledge the time commitment upfront. Be prepared to spend the time on the maintenance costs and management issues. Have an up-front plan on how you will deal with the increased management issues. Are you willing to put in the hours yourself or outsource those duties? You can’t be an absentee landlord and maximize the return on your investment. But, just because something is a MUST DO; doesn’t mean YOU must do it.
Professional help required. If you are going to handle the maintenance issues at a commercial property, you should be licensed. Evaluate beforehand if you want to manage leasing and the relationships yourself, or if you want to outsource those responsibilities Consider hiring a licensed property manager to delegate or hand-off the more time-consuming and immediate property.   The likelihood is you will not be prepared to handle maintenance issues yourself and you will need to hire someone to help with emergencies and repairs.
Bigger initial investment. Acquiring a commercial property typically requires more capital up front than acquiring a residential rental in the same area. Once you’ve acquired a commercial property, you can expect some large capital expenditures to follow. Budget in the added costs. Meet with a knowledgeable financial advisor or real estate professional about the initial and continued costs of acquiring a commercial property. Have them talk about typical unexpected, but inevitable costs such as roof repairs or a new furnace.
More risks. Properties intended for commercial have more people on the property each day that can get hurt or do something to damage your property. Invest in the proper type of commercial insurance. Include insurance in your regular cost of doing business. Investigate the different types of policies available for you type of commercial property. Incidents and accidents can occur anywhere, but chances increase when the public is involved.The different types of commercial properties include:

  • retail buildings
  • office buildings
  • warehouses
  • industrial buildings
  • apartment buildings
  • “mixed use” buildings, where the property may have a mix, such as retail, office and apartments.

Tammy Hughes, Broker and Property Manager at Ideal Property Group sums it up nicely. “Lastly, it’s imperative that you associate with experienced commercial investors who can answer questions that come up while you are evaluating properties. There’s no sense in losing a deal or buying a bad property because you didn’t understand something.”

Bottom line: Know who you can ask to get fast answers when you need them, and make them your new best friends.

Regardless of your unique property needs, Ideal Property Group can assist you. Consider the Ideal Property Group as your comprehensive Raleigh, NC real estate resource. Here you can preview properties for sale, tour neighborhoods and, if you like, maybe even get to know us better. It’s all about providing you the tools you need to confidently complete your real estate transaction. Those tools include easy to use property search tools and local area info. If you need our expert Raleigh, NC real estate assistance, we are a click or call away. No pressure, no strings – just great service!

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