While residential real estate is certainly an attractive way of making money, commercial real estate is quite a lucrative business as well. Even if you are a residential landlord, you may come across a building with a commercial tenant and it does pay to know about commercial leases. Here are some of the advantages commercial real estate has over residential real estate.
1. Longer Term of Lease
The main disadvantage of having residential tenants is that the leases are not very long, on average. Residential leases rarely go beyond a year, while commercial leases have much longer terms. This favors both the landlord and the tenant. The landlord benefits from the security that comes with having a tenant for the long term and a commercial tenant benefits by locking down overheads and having a steady location.
2. Lucrative Rent
For residential spaces, rent is fixed for each month. For commercial establishments, on the other hand, rent may be lowered or waived in the initial “settling down” period, and then steadily increased as the business settles down and profits come in. This increase also helps in keeping up with inflation.
This is in many ways very similar to a Merchant Money business advance that involve per-purchases of a certain number of credit card transactions, enabling the establishment to use these to start up their business. This is repaid using a percentage of credit card sales until the money previously agreed upon is reached. This type of financing has many advantages over a bank loan since it can be repaid according to how successful the business is each month and the borrower doesn’t need to worry about reaching a fixed deposit.
4. CAM Charges
Common Area Maintenance is another bonus of commercial real estate. CAM refers to charges that go into the upkeep of the surrounding areas. Commercial tenants also pay a portion of the utilities commonly utilized by the establishment.
5. Improvements Performed by Tenants
Most commercial establishments need alterations to be made usable for their purposes. For instance, a restaurant may need special kitchen appliances. An office environment might need cubicles or partitions, or special wiring. These also add to lease security, as the investment gives the tenant further reason to stay put in the same space for longer periods of time.
As you can see, investing in commercial property gives the landlord considerable advantages over residential real estate. It enables them to have tangible assets, as opposed to owning shares in businesses, and also keep up with the changing economy. It provides a steady flow of income while also providing security. There are also umpteen tax benefits to this business. To top it off, there is also the pride of owning income generating property, and one can’t really put a price on that. So, if you were still on the fence about buying and renting commercial spaces, we hope this piece will be able to shed a better light on commercial real estate investment.
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