Like other issues in real estate investment, the argument on whether to invest in residential over commercial continues to separate investors. Potential investors say that residential is a least risky option and those in favor of commercial would argue that commercially is better due to its probable cash flow.
· Commercial properties are conscious to financial conditions - When the economy is stable, businesses prosper and demand commercial properties typically increases. But when there is an economic shutdown, the demand normally falls.
· It takes the time to find a tenant – Although commercial properties attract long-term leases of 3 to 5 years or more, it can take even longer to find a tenant. It is not unusual to face long vacancies; it means you need to handle all the cost during this term.
· It is vulnerable to changes - Increase in new construction coming on the market in the same locality creates a threat, as tenants may look up to upgrade.
· Changes in infrastructure in the area can be adverse - Major infrastructure changes in the locality can not only attract commercial investments but can also allure tenants away from older commercial bounds. This results in the property becoming vacant.
· Values can drop sharply–When a commercial property becomes vacant, or the lease expires, the price of the property is generally expected to fall.
If you want diversity and a cash flow injection, a proper-located commercial property might be a good option. But ensure to be alert and understand the risks involved.