I recently kicked off a new business venture with a group of guys last weekend, and afterwards I got to talking to one of them about some of the other investments opportunities that he saw in the current marketplace.
Most of the things that we discussed were your standard type of investments like stocks and property, but while we were talking about property we touched on the topic of commercial property. It hasn’t ever been something I had thought about, but from what I can see, the return on investment can be much better than a standard residential property investment.
Risk vs Reward
When I next had the opportunity I started looking into commercial property investment as a potential investment opportunity for the future. What I found was that it is not uncommon to get a return of between 8% to 10%, whereas your standard residential house or unit will yield on average only 5%.
Now there are some obvious drawbacks when investing into commercial property, with the main one being that often commercial property is a lot more expensive than residential property. This will leave you carrying a far larger amount of debt than you otherwise would with a residential property.
I also believe that there is a far greater risk of high vacancy rates. This is particularly true when the economy is facing a down turn and business is doing things tough. You might end up sitting on a property for a few months before you can get a tenant in to occupy the place, although a lot will have to do with how well you think about your location and the type of businesses that might be interested in leasing your property.
Finding Commercial Properties for Sale
I suspect the biggest reason why I haven’t ever looked into commercial property investment before, is because you almost never see commercial properties for sale. I mean I walk past real estate agents offices all the time, and I don’t think I have ever seen a commercial property for sale.
It turns out that most of the properties are advertised by specialist commercial real estate agents like TGC. This actually makes a lot of sense once I started thinking about it. They are completely different markets looking at a completely different type of investor.
As it stands at the moment, we have just started the process of building a new house (more on that soon) so commercial property investment probably isn’t going to be on the agenda for a while, but it certainly is something I could see myself getting into as a way to diversify my investments.
Have you ever owned a commercial property? I would love to hear your thoughts.