The Pros and Cons of Investing in Commercial Real Estate

As with any investment vehicle, there are pros and cons to investing in commercial real estate. Below, we’ll take a look at some of the most common positives and negatives associated with commercial real estate.

Pros of Commercial Real Estate Investing

Income Potential. Perhaps the best thing about investing in commercial real estate is the income potential. Investing in a commercial property that houses multiple tenants naturally provides you with the opportunity to generate more income through rents each month.

Flexible Financing. Unlike a residential mortgage, there are more options for funding with a commercial property. From traditional to non-bank lenders and everything in between (small business loans, peer-to-peer lending, etc.), there is a wealth of options available in the commercial space. 

Economies of Scale. Let’s say you purchase a multifamily property or a large office building. By owning a property with multiple units, you can often negotiate better deals with service providers, property managers, contractors, etc.

Semi-Passive Investment. Of course, there will be a time commitment to owning commercial real estate, but — because most businesses are 9 am-5 pm — it’s unlikely that you’ll be called for an emergency after hours. And, for those investing in multifamily properties, there’s always the option of hiring a property manager for those after-hours needs.

Cons of Commercial Real Estate Investing

Bigger Initial Investment. Generally speaking, a commercial property can require more money down than a traditional residential mortgage. Similarly, the unexpected expenses (ex: repairs, maintenance, management, etc.) can be larger sums than what would be expected in some other types of investments.

Reliance on Others. With a commercial property — unless you intend to manage it yourself — you’ll likely need to rely on others to help you maximize your investment. Property managers, specifically, play a great role in the success or failure of your investment, as they are the “eyes and ears” of the property and the first stop for tenants.

Greater Risk. Commercial properties often hold a larger risk thanks to the number of visitors they could see daily. There is a risk that a visitor could fall or get hurt or that vandals could damage your property.

Making a Commercial Real Estate Investment

If you’re interested in learning more about how to invest in commercial real estate or you’d like to explore your funding options, our team of experienced loan officers would be more than happy to speak with you. Connect today to get started!