Thinking about investing in commercial real estate? It can certainly be a lucrative venture.
For those unfamiliar, this type of property is generally defined as land or buildings that are intended to generate a profit in some way.
More specifically, commercial real estate is divided into subcategories. There are four main types, including multifamily, office, industrial, and retail.
Which type is correct for you? It really depends.
Each comes with its own set of pros and cons.
Pros and Cons of Investing in Commercial Real Estate
Commercial real estate investing can be a great wealth-building tool. Here’s what’s to like and dislike about investing in each of the four types of commercial properties.
Risk is typically limited with multifamily properties, such as apartments. High vacancy is somewhat of a rarity. When a tenant moves out, often little needs to be done to re-rent a unit beyond some fresh paint and new carpet. On the flip side, sometimes a lot needs to be done.
Office spaces tend to be somewhat of an inflation hedge. Built into leases are increases in the rent. Plus, tenants are usually responsible for all costs, including net rent, taxes, maintenance, and insurance. However, when tenants churn, the vacant space may need major renovations to suit the new renter.
Capital requirements are quite low with industrial spaces, but it’s an extremely competitive market right now. (Thanks, Amazon.)
High-end retail spaces (like promenades) and low-end spaces (think dollar stores) are currently doing well. But the retail properties that fall somewhere in between, such as strip malls, seem to be falling off.
For added insight into each category, check out my video above!
Which category do you prefer? Why?
Leave a comment below.