COMMERCIAL INVESTMENTS...

There's an old joke in commercial real estate: If you think nobody cares you're alive, just miss a few mortgage payments!!!

Investing in commercial property is not something we think of doing easily. When we hear the word investment, normally the first thing which comes to our mind is a home. After all, shelter is one of the primary needs of man.

It is quite natural to start out investing in a home, as we are more accustomed to the same – but with the demand for land increasing with each day, commercial property too would be a sensible option for a secure future.

Firstly, a commercial property is always valued differently… and more than a residential property because the income that it produces is directly related to its usable square footage.

Secondly, the cash flow is much more in commercial investments and their leases are generally much longer.

Thus, if you ask a real estate professional about the benefits of investing in a commercial property, chances are that you will trigger a monologue on how such properties are a better deal than residential properties!

To start with, there are three ways to invest in commercial real estate:

     1.Buy office space from a developer

     2.Buy shares of a commercial developer from the stock market

     3.Invest in a real estate fund focused on commercial real estate.

Before plunging headlong into a deal, one needs to weigh one’s options well.

You as an investor must first verify and establish the location and its demand-supply and other market dynamics. This is very essential to ensure a smooth and profitable investment.

It is also a must to verify the credentials of the developer, quality of construction and management, access to public areas, connectivity and potential for future growth. 

Whether you intend to use the property or simply purchase it as an investment, these factors will only ensure higher returns in the future…

If you are just investing with the motive of ‘extra income’, you must be careful about --

1.The break-up of cash flows

2.The vacancy factor

3. Miscellaneous expenses like maintenance, property tax and building insurance

4.Lease term, lock-in period and expiry dates

5.Long term capital appreciation potential

6.Refurbishment, refinancing and re-positioning potential

[source : DailyBhaskar]

The biggest reason why you should be looking at commercial investments is that the rental yield it gains is usually 9-12% compared to 3-4% for residential properties.

According to news reports, in 2010, the demand for office space across India was 30 million square feet – 50% higher than it was in 2009. Today, the demand is much higher!

…After all, the pride of ownership, benefits of longer leases, and the cash flows… isn't it good enough to invest?!

After all, investing in commercial property is a high-adrenaline and high-returns game that residential real estate investment does not always guarantee!