Investment in Commercial Property a Great Choice?
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The Well-Liked Commercial Properties and Their Features
Commercial property is real estate that is used for business activities. Commercial property usually refers to buildings that house businesses, but can also refer to land used to generate a profit, as well as large residential rental properties. The designation of a property as a commercial property has implications for how it is financed, how it is taxed, and how the laws are applied to it.
Hospitality
The hospitality industry is a broad category of fields within the service industry that includes lodging, food and drink service, event planning, theme parks, travel and tourism. It includes hotels, tourism agencies, restaurants and bars.
Retail
About the Retail Trade sector. The retail trade sector is part of the trade, transportation, and utilities supersector. The Retail Trade sector comprises establishments engaged in retailing merchandise, generally without transformation, and rendering services incidental to the sale of merchandise.
Office
An office is a space where an organization’s employees perform administrative work in order to support and realize objects and goals of the organization.
- Private Office.
- Coworking Desk.
- Virtual Office.
- Enterprise Office.
Multifamily (apartments)
Investing in a multifamily property is a great way to grow your real estate portfolio and bring in additional income. Owning multifamily properties can be a small endeavor or large undertaking, depending on the number of rental units that the property contains.
Educational
The Educational Services sector comprises establishments that provide instruction and training in a wide variety of subjects. This instruction and training is provided by specialized establishments, such as schools, colleges, universities, and training centers.
Industrial
Industrial real estate refers to land and buildings that are used by industrial businesses for activities such as factories, mechanical productions, research and development, construction, transportation, logistics, and warehousing.
Why is Investment in Commercial Property a Great Choice?
Commercial assets, such as offices, shops, warehouses, and other commercial properties, are secure investments because they can generate recurring rental revenue. Commercial tenants typically have longer lease terms, providing investors with a more reliable and predictable stream of income. Office spaces generally tend to be good investments for at least four to five years. If the company does not have a head office or corporate office yet, in such cases, the lease tenure could go up to 10 years with the possibility of subsequent renewal at the tenant’s request. Pre-leased commercial properties being already rented to tenants reduces vacancy risk.
- The top reasons for investing in Commercial properties are:
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Generating Passive Income
It’s worth noting that large passive income from commercial properties, along with appreciation, can result in a total return of up to 15% per year, assuring a consistent cash flow for an investment. Commercial real estate investment is in high demand and provides a superior rental yield. This rental income is stable and you have complete control over selecting the right property based on your ROI expectations, making real estate an ideal passive income source.
Analysing Market Trends
By 2030, India’s real estate sector is predicted to have grown to a market value of US$ 1 trillion, up from US$ 200 billion in 2021, and contribute 13% of the country’s GDP. Retail, hospitality, and commercial real estate are all expanding rapidly, supplying India with much-needed infrastructure. With the introduction of Real Estate Investment Trusts (REITs) in India, commercial property investment is likely to increase.
Business-Friendly Policies
The commercial sector has seen a massive turnaround as a result of the Central Government’s business-friendly initiatives, such as the Make in India scheme and the increasing influx of Foreign Direct Investment (FDI) following the implementation of RERA. It is encouraging to observe an improvement in the Indian economy, which has prompted businesses to increase their demand for commercial real estate and expand their operations.
Easy to Leverage
Lease rental discounting (LRD) allows property investors to use leverage to buy pre-leased/pre-rented commercial properties. LRD is a term loan given by banks using rental receipts as collateral and are usually available at interest rates of 7-9% per year. LRD’s also allow property investors to borrow up to 65-70% of the property value. The advantage is that the EMI for the loan is usually less than your monthly rental. As a result, a one-rupee investment can directly yield a four-rupee asset when the loan is paid off with no outflow from your pocket during the term of the loan. Lease rental discounting can also be used by rental property owners to provide with the much-needed liquidity that seems to be otherwise lacking in immovable assets.
Professional Tenants
Lock-in period for a commercial property may generally vary from three years to nine years, providing stability in your returns and protecting your investment from floundering. The tenants in CRE have mostly established businesses, hence it is easier to manage the tenants. The investor (landlord) and tenant have a more business-to-business connection, therefore interactions are more professional and courteous. As compared to renting out your residential property to a family or individuals where personal interaction is required.
Trend to Stay
While the pandemic is nearing an end, most businesses have reopened their doors and called staff back to work. In addition, most people are trying to return to work for a variety of reasons, including family sizes, smaller homes (in metropolitan cities), and unpredictable internet connections. Flexible work spaces have become a trustworthy option for employees and enterprises since they allow individual flexibility, and determine the future of the office in India in the years to come.
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Conclusion
These property investment ideas may sound basic, but they are effective. For a beginner, these suggestions can help in framing a right strategy. Connect with Us to Crash in Deep.
- Location of property.
- Size of property
- Affordability.
- Acceptable quality & amenities.
- Time of purchase.
- etc
In summary, commercial properties should be considered as part of an individual’s investment portfolio to earn superior passive income and with the right use of leverage commercial property investment can be a great wealth building tool.. Connect with our Agent/Advisor. We are here to Serve you Professionally.
Have a happy investing……