While investing is one way to financial independence, the hard part is deciding where to put your money. In Texas, commercial real estate has proven to be a solid, stable prospect that can be less volatile than the stock market or day trading.
Before you decide to enter the commercial real estate market, you should know a little more about what you’re getting into.
Commercial real estate vs. residential investing
Real estate investing is the act of purchasing property and using it in a manner that will create a steady stream of income. The hope is that the property will increase in value over time and/or provide enough recurring rental income to make a profit.
Investing in commercial properties isn’t the same as buying or selling a home. When you invest in a residential property, the goal is usually to either improve the property and flip it or rent it out to tenants.
Commercial property is generally developed for retail or business purposes. It can include land, factories, hotels, or office parks. Your clients are business owners and professionals who need a dedicated space to engage in commerce.
Benefits of investing in commercial property
Both types of real estate investments can return substantial profits, but commercial property can create a higher ROI with fewer headaches. For example, a residential tenant who doesn’t pay their rent can leave you in a bind. You’ll have to spend money taking them to court and find another tenant in the meantime.
Investing in commercial property makes it less likely that a tenant will be unable to pay, the rents are substantially higher for commercial spaces, and you often have other tenants to take up the slack should one renter default.
When you own a residential property, the expense of improvements, repairs, and maintenance fall on your shoulders. Commercial leases are different. Often, improvements or business-exclusive additions fall on the individual business owner. Taxes, insurance, and other operating costs are usually transferred to the tenant as part of the lease agreement as well.
Bottom line
Diversifying your investments will provide you with flexibility and long-range financial security. Adding commercial real estate to your portfolio could provide you with a significant return and steady cash flow on a regular basis.