Commercial Real Estate Investment and Residential Real Estate share many similarities but there are some notable differences one must keep in mind while investing in a commercial property. First of all commercial property needs a bigger investment as compared to residential property. Flipping Commercial properties isn’t as easy as the residential property therefore they are usually mid to long term investments. It earns higher returns on the investment from high rents in comparison to residential property that gains more from capital appreciation. Commercial Property needs to be managed a bit differently. Any investor looking to diversify their portfolio must consider commercial property as an option for investment. We are listing a few key points one must keep in mind before investing in a commercial property-
1. Funds at disposal should be bigger than the Ticket Size– One must keep in mind that they cannot spend all the funds at their disposal for just buying a property. They must be prepared for the additional costs that occur after the purchase or they must be calculated at the time of investment.
2. Leveraging– Leveraging is when you use borrowed capital especially for an investment and expect the profits earned to be bigger than the interest payable. Investors prefer taking loans while investing in order to minimize their risks but one must prepare a credible and realistic income forecast so that they don’t end up failing while trying to keep up with the loan payments.
3. Business centric location– Real estate is all about location and anyone looking to invest in real estate, be it residential or commercial must consider the location of the project looking to invest in. Thorough research about the government’s proposed projects for the area is a must because new governmental developments can add to the location or bring down the value of property. For eg. The International Airport coming up in Mohali is giving a boost to the residential and commercial property in Zirakpur. In the near future the commerce and trade of Zirakpur will be on a rise due to its direct connectivity to the International Airport via Ring Road that connects 3 states and one U.T.
4. Risk of Vacancy– Risk of vacancy must be avoided at any cost in case of commercial spaces as major chunk of the income from an investment in commercial space is from the rent. If the property remains vacant for a longer duration then it’s not a profitable situation for the investor. The general state of the economy as well as the local market condition affects the demand of commercial property. Investing in a bigger office space and renting out to multiple tenants is a secure method to avoid vacancy. Also tenants like banks or Govt. dept are a suitable option as they stay in business for longer durations.