Today, investors are increasingly skeptical about the possibility of investing in Clavon residential real estate. Low rental income for tenants and the lack of serious preconditions for rising house prices contribute to the fact that investments in commercial real estate are becoming more important.
CHARACTERISTICS OF THE COMMERCIAL REAL ESTATE MARKET
As well as residential real estate, commercial properties are able to generate income as a result of speculative operations (buying and selling), or in the form of rent.
However, the fact that commercial real estate is intended for business affects the number of potential tenants and their nature. People interested in commercial real estate are about 4-5 times less than those who need housing. This is logical: entrepreneurs, and especially medium and large ones, represent a relatively small stratum of society.
Moreover, the commercial real estate market is more sensitive to negative factors than housing. This is due to the fact that business activity is experiencing ups and downs. During periods of decline, demand for warehouses, offices and other facilities falls sharply, along with this, the price decreases. Having a narrow focus, investments in commercial facilities have good prospects only on favorable terms.
RATE OF RETURN
In pre-crisis times, the benefits of investing in offices, warehouses and similar buildings were palpable. There were years when property prices doubled, and even a small object could bring in a substantial income for its owner. Currently, income cannot always be obtained, so the investment should only be made after a careful calculation of all the details.
Depending on the investment strategy developed, the investor may receive significantly more income from a commercial building than from an apartment. This is due to the fact that the rent for a commercial property can be 1.5 – 2.5 times higher than the rent for residential real estate with the same initial cost of the property. Commercial real estate is attractive as you can enter into a long term contract at a high price. This is an ideal choice for those who want to receive a passive income. Accommodation is expensive only with daily rents, accompanied by numerous troubles.
The amount of income from real estate transactions is measured by the “capitalization ratio”, which is defined as the ratio of net income for the year to the initial investment amount. For residential properties, a figure of 3 to 7% is considered normal, for commercial – from 8 to 12%.
ATTRACTIVE FACILITIES FOR INVESTMENT
Most often, investors prefer warehouses, offices and retail premises, as well as hotels. To understand which type of real estate will be most profitable in a given city or area, you need to:
- Analyze the supply, demand and infrastructure of the local market;
- Based on the data collected, calculate the benefit and repayment periods of different types of facilities;
- Gather the results in a table and choose the most attractive options.
As a rule, the cost of offices and trading floors pays off faster: it lasts from 5 to 10 years. Hotel-type warehouses and premises require more time: from 7 to 11 years. The greatest risk for investors is associated with investments in commercial buildings that are under construction. The construction of a facility can be frozen or completely discontinued for reasons that cannot always be foreseen. Especially often, such situations arise in times of crisis and after the crisis. To be safe, you should give priority to those items that appear on the secondary market.
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