Is commercial property investment profitable?

Investing in commercial real estate property is a great strategy for wealth diversification in the United States. Its huge potential for additional funds is a big reason why many are interested in putting their money into this lucrative venture. While investing in residential properties has guaranteed monetary benefits, others can lean toward commercial property investment to de-saturate the market.

In this article, Mortgage Professional America will help you learn everything you need to know about commercial property investment. We will tackle which type of commercial property is most profitable and help determine a good ROI for this kind of real estate investment. We will also help you understand whether it is the right time to invest in commercial properties now.

To our usual pool of mortgage industry readers, this is another one of our client education pieces. For those with clients who are interested in learning about commercial property investments in the country, make sure that you share this article with them!

Is commercial property investment a good way to earn profits?

The straightforward answer is yes, commercial property investment can be a profitable option for those who want to earn extra income. But you need to be comfortable with some risk and you should also think long term. If these apply to you, then you will mostly bring your portfolio to the next level and increase your cash flow. The same is true once you find the property that most benefits your business.

What type of commercial property is most profitable?

When investing in commercial property, it is important to do your research to know which types of properties are most profitable. That way, you will be able to totally commit to your investment. Here are some types of commercial property that typically guarantee the best return for your money:

1. properties with a high number of tenants
2. properties in areas with growth
3. properties with triple net leases

Take a look at our in-depth discussion of each commercial property investment type:

1. Properties with a high number of tenants

Properties with a high number of tenants are usually the most profitable commercial real estate. Think of it this way: the more tenants you have, the more profits you can earn. As such, choosing a property with a high number of tenants is one way of getting an excellent return from a commercial investment.

Examples of high-tenant properties are:

• apartment complexes
• storage facilities
• student housing
• recreational vehicle (RV) parks

The more tenants you have, the higher your earnings become. And with higher demand for your property, the less you will have to concern yourself with finding tenants at little notice.

2. Properties in areas with growth

Properties that are in high-traffic areas are particularly good in the retail world. They have a greater tendency to draw tenants who will renew their leases. These areas also tend to attract new tenants if current occupants leave for any reason. Another example of an area with the potential for growth is a new suburb, which can be a magnet for real estate investors.

Aside from properties in areas with growth, you should choose the right property investment opportunities that can yield positive results for your wealth portfolio.

3. Properties with triple net leases

Triple net leases typically refer to single-tenant spaces. These tenants usually sign long-term leases. This type of commercial property investment is profitable because it places the responsibility of paying for maintenance in the tenant’s hands. The same is true for building insurance and real estate taxes.

It also allows you to enjoy a stable income from your investment, instead of estimating payment based on projected costs. In other words, you do not have to worry about continual maintenance, which can be beneficial to millennials who want to invest in real estate but do not want to quit their day jobs. This investment can fit any lifestyle.

Want to know if investing in commercial properties is a good idea? Check out this clip:

Now that you have an assurance about commercial property investments being profitable, you have a good reason to put your money in them. But if you are still undecided, try to explore our specialty page on commercial real estate news and trends for the US.

What is a good ROI for commercial real property investment?

A good return on investment (ROI) for commercial property investments is dependent on many factors such as:

• type of property
• location of the property
• conditions of the real estate market
• state of the US economy

Your personal investment objectives also have a role to play in determining whether your ROI is satisfactory or not. But as a general rule, a good ROI for commercial real estate investing is a figure higher than that of the average annual ROI in the country. For instance, the average ROI for commercial real estate can be 8-9%. If your ROI is higher than that, then you can consider it a good investment.

However, an ROI that is above average does not automatically mean that the risks are lower, nor does it reflect the overall state of the real estate market. As such, you need to be informed about the latest in the industry as much as possible. Subscribe to our newsletter to get updates on commercial real estate and related industries.

Comparing with residential property investments

When it comes to commercial property investments, a good ROI is typically higher than the ROI on residential property investments. Commercial properties tend to have:

• longer lease terms
• higher rental rates
• lower vacancy rates

What makes commercial property a good investment?

While successfully managing these investments can have its complexities, there are many advantages. Here are a few reasons why commercial property is a good investment:

1. income potential
2. professional relationships
3. limited hours of operation
4. more objective price evaluations

Let us discuss each of these reasons why commercial property investments are profitable:

1. Income potential

This is the number one reason why commercial property is a good investment. Depending on the area and other factors, commercial properties can have a steady annual return off their purchase price. In the US, commercial property investments have an average return of 9.5% per year.

2. Professional relationships

An owner of a commercial property is more likely to run the property as a small business, if for no other reason than to help protect their livelihood. That makes the landlord-to-tenant relationship more like a business-to-business customer relationship, helping to keep any interaction professional and beneficial for both parties.

3. Limited hours of operation

Most businesses stop their operations during nighttime. This means that you normally do not have to work unless they work. Some exceptions include being called out during a fire alarm or for break-ins. But even then, for commercial properties, you might want to have an alarm monitoring service that will notify the authorities on your behalf.

4. More objective price evaluations

It is usually easier to evaluate the prices of a commercial property than a residential property. The reason is that you often request the owner’s income statement and use that to determine the price. An experienced real estate broker will usually do this for a price. Residential properties, on the other hand, have a tendency to follow more emotional pricing.

When is the right time to invest in commercial properties?

Due to the COVID-19 pandemic, the commercial property investments sector has drastically altered over the past few years. Trends are changing but its effects still linger. Compared to previous years pre-pandemic, commercial real estate trends are still down.

Does this mean that now is not the right time to go for commercial property investments? Not necessarily. While numerous types of commercial properties are still on the decline, some are bouncing back—they have adjusted and adapted to the new normal. With this, the question is less about the time and more about the type of commercial property investment that you want to look at.

When is the right time to invest in commercial properties?

When we talk about commercial property investments, we usually think about these kinds of infrastructures:

• office buildings
• retail spaces
• industrial buildings
• rental properties
• multi-family housing
• warehouses

Among these types, multi-family housing is a commercial property investment that has yielded positive returns even after the pandemic. Multiple tenants paying under one roof instead of one single-family residential property can mean more revenue.

You can also try exploring other types of commercial property investments that are becoming more popular. For instance, the climbing demand for warehouse spaces and industrial real estate. What’s more, the increase in online shopping and the importance of quick shipping has meant fulfillment facilities are also in higher demand.

Keep an eye out, then, for commercial properties that might be in demand due to certain internal and external economic factors. Be extra cautious before deciding whether it is the right time to invest in commercial properties.

Watch this video to help you decide if now is a good time to put your money in commercial property investments:

Since future trends in commercial property investment are gearing toward multi-family properties, you should consider if you want to enter the market. Making a decision to invest in commercial properties can be easier when you discuss it with your real estate agent and a competent mortgage professional. Try looking for one on our Global Best in Mortgage page.

Is it worth it to invest in commercial real estate?

If done correctly, you can get your money’s value once you decide to invest in commercial real estate. The statistical data for this type of investment speaks for itself, despite the lingering challenges brought about by the COVID-19 pandemic. Commercial property investment is a great way to bring your portfolio, not to mention cash flow, to the next level.

You might also solidify your decision by exploring different types of commercial real estate aside from those above. However, you should be ready to face risks and lean more on the long-term rewards.

Finally, look for the most beneficial type of commercial real estate for your business or your financial situation. If you think you can do these things, you can be sure that putting your money into commercial property investment will prove to be a worthwhile and money-making venture.

Do you have commercial property investments? If not, would you try investing in commercial properties? Tell us what you think in the comments section below.