Thursday, 15 September 2016

5 reasons investing in commercial property might be a bad idea

Investing in commercial buildings is slightly messier and riskier than investing in residential real-estate. There are so many things like additional laws, legal requirements, and in-depth knowledge that make commercial real estate more difficult to handle.
There are certain reasons that make commercial properties so difficult to manage:

·       Commercial buildings are conscious to economic conditions - Commercial buildings are far conscious to a changing financial climate. When the economy takes a downturn, people will always require a roof above their head. But this cannot be said about commercial buildings. When the economy is good, the demand and the cost of commercial property go up. But, when the economy is strong on a national scale, local economic up-downs play a vital part.
·       Estimating commercial properties are difficult – In commercial buildings, it is tough to compare two properties. Many factors affect the value of these buildings. Also, it is difficult to search resembling properties that have been rented out recently.
·       Finding tenants is time-consuming - Once vacant, commercial properties usually take much longer time to find tenants. Since these properties are rented out for business purposes, it has a pretty huge effect on the cash flow.
·       Old commercial buildings are a threat to new and upgraded ones - Tenants always search for furnished office spaces. And as new buildings pop up, the risk of vacancy to older properties rises which may mean more costs.
·       Financing a commercial building is difficult – The loan amount of commercial buildings will be amortized for less than thirty years and mostly follows a balloon payment mode. Added to this fact commercial building is generally more costly to purchase, and things get tougher.

These risks in commercial property investment are not there with residential property investment.

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