Sunday, 21 August 2016

Risks Factors Associated With Commercial Property Investment

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.

Some risks in commercial property are:

·       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.

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