Investing in commercial retail property has many benefits and holds great potential for becoming a source of steady, passive income. Commercial retail property falls under the larger umbrella of commercial real estate, which includes office, industrial, multi-unit apartments, and mixed-use properties. Investing in these types of properties has some important advantages over investing in residential properties. Some of these advantages include fewer vacancies, steadier cash flow, and higher income potential and steady appreciation. It’s for this reason that purchasing commercial retail properties for the purpose of reselling them can be a lucrative endeavor. There is often less competition when buying and selling commercial properties, and the profit margins tend to be much higher.
While commercial retail investment has the potential to yield large returns, there are some things to keep in mind when evaluating a property’s potential. As with all real estate, location plays a crucial role in determining if a property is worth investing in. When investing in commercial retail property, keep the following in mind:
- Make sure the property is in a high-visibility area that receives a lot of foot traffic.
- Examine how the property is currently performing and the factors that influence that performance.
- Consider the potential for competition arising in the future. This is also important when planning to resell a property due to the fact that it often takes much longer to sell a commercial property than a residential property.
- Become familiar with Net Operating Income (NOI), capitalization rate, and cash on cash.
- Compare the After-Repair Value (ARV) to the estimated cost of repairs.
Many factors determine if a retail property is going to yield the desired returns, and the experienced professionals at Royal Commercial Real Estate assist you with analyzing all the details to determine if a property suits your needs.
Pros and Cons of Commercial Retail Investment
As with any business endeavor, there are benefits and risks that must be weighed before making the decision to invest. Weighing the pros and cons assists you in determining whether commercial retail investment is a good fit for you.
- High return on investment when compared to residential properties
- Even small renovations or repairs can significantly increase the value of the property
- Potential to make very large profit margins from under-valued property
- Commercial properties often take much longer to sell than residential properties
- Due diligence is required to make a smart investment
- Higher cost of entry as opposed to residential real estate investments
- More complicated than dealing with residential real estate
Investing in commercial real estate carries significantly more risk than investing in residential real estate, but it also yields higher returns, and for the smart investor, it can mean generating large profits years into the future. Royal Commercial Real Estate has the experience and expertise to guide you in your decisions and assist you in meeting your commercial real estate goals.