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In real estate, commercial property investment refers to buying or sharing in the costs of purchasing property that is meant for commercial or business use. Commercial property investment is less risky than residential property investment in that it almost guarantees a source of income after the sale. In contrast with residential property, which is generally purchased for the purpose of becoming living quarters, commercial property can be used for a number of purposes. These purposes include office or retail rentals, storage, parking and community use.
There are many ways that a commercial property investor can generate a healthy income from the purchase or maintenance of a commercial property. Depending on the condition of the property, the building or lot can be converted to rental space for shops, offices and community use with a set fee for monthly use of each unit. In addition, commercial property can be transformed into parking lots for nearby businesses to utilize with rental fees for parking lanes. Many commercial buildings are used for long-term storage rentals by other businesses lacking in space.
In terms of tax benefits, commercial property investment is generally easier to establish business tax use status which results in lower fees. Many commercial property owners include tax fees in rental prices which offset the cost of maintaining buildings, making upgrades and paying for property taxes. It is generally more difficult to justify a business tax credit with residential properties.
Commercial property investment can be a favorable way for even novice investors to generate a modest income through real estate. In many cases, groups of investors come together in order to raise the capital to purchase a commercial building or property. This allows all parties to share in the costs and upkeep of the commercial property in addition to earning a monthly income based upon the size of their investment percentage.
A good reason that commercial property investment is a smart choice for many is that in the event of an issue or problem with the building, renters will generally contact the owners or property managers during regular business hours. This is in contrast to residential property investment, where tenants have the tendency to contact owners at all hours over issues like leaky faucets, tenant disputes and other unpleasant matters. Many commercial property investors hire an on-site maintenance provider to handle emergencies, allowing for freedom of ownership.
Another advantage to commercial property investment is that tenants are business-oriented and less likely to destroy the property itself through negligence. Business property owners are more able to come in to inspect the commercial property than with residential owners that may have to notify tenants days in advance just to address repair issues. In many cases, residential property is damaged by tenants and the costs of repair and rehab must be absorbed by the property owners.
In uncertain economic times, commercial property investment can be a wiser choice as property values are less affected. Commercial properties are more likely to retain their value and can be liquidated for higher amounts to commercial property investors who have the capital on hand versus residential properties which can be difficult to sell to average consumers. Commercial property is also generally more valuable due to building size, quality of materials and income producing potential, making asking prices higher than residential homes.