Investing in real estate is one of the best wealth-creation opportunities. There are two primary investing options – commercial and residential. Although the two are very similar, they differ in many aspects. Many real estate finance management firms advise investing in commercial real estate due to several factors.
Why Invest in Commercial Real Estate?
Real estate experts favour commercial estate over residential property. These are the reasons behind their opinion:
- Low risk of vacancy – Commercial properties have long lease terms. Due to this, commercial places remain vacant for a much shorter time than residential properties. You’ll also have sufficient time on the notice before a tenant vacates the site, allowing you to find another interested party.
- Higher profit margins – In commercial real estate, you have more area that you can rent, which means you can have more tenants and more rental income as opposed to houses for sale in Kuwait City.
You can also hire property management professionals to help manage your day-to-day activities on your property, freeing you from routine responsibility. Tenants also pay for insurance, taxes, maintenance, etc., putting a minimal financial burden on you.
- Low volatility – Having multiple tenants reduces the loss or risk you incur due to non-payment of dues. For example, if there are 100 tenants in your commercial complex and 10 have not cleared their dues, you only incur a 10 per cent loss. However, if you invest in a single residential property and the tenant does not pay, you incur a 100 per cent loss!
There Are Some Risks as Well
Given that there are some advantages to investing in commercial real estate, there are some risks as well.
- The cost is high – Residential real estate is cheaper than commercial real estate. Since commercial complexes tend to be larger than houses, they command more money.
- Suffer during economic slowdowns – In the current economically uncertain times, businesses suffer the most, especially small businesses. This means that commercial real estate is the hardest hit when economies take a downturn.
Overall Growth Prospects Favour Commercial Real Estate
If you’re looking to build a robust passive income and generational wealth, ask any renowned real estate finance management firm, and they’ll recommend that you put your money in commercial real estate. You can also invest small amounts in residential property and then transition to commercial real estate to reap higher returns.
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