Things To Consider When Investing In Commercial Real Estate

Auricchio Law Offices represent clients who purchase or sell residential and commercial real estate. Identifying and defining each term is essential to understanding the pros and cons of both types of investments. Residential real estate centers on single-family homes and smaller multifamily properties with 2-3 units. Commercial properties are used to generate profit. Examples include retail stores, offices, apartment complexes, and industrial properties. 

After you purchase your first residential property, you will likely start to build equity. Equity is determined by subtracting liabilities from assets. If you owe $200,000 on a home that is valued at $400,000, you have $200,000 in equity. Because of how quickly homes have appreciated, you may have considered making additional real estate investments. For anyone who has considered buying commercial properties as opposed to residential, here are some things to consider before entering this market. 

Commercial Real Estate

Many people opt for residential real estate investments because it is easier to secure a loan, you typically need less money, and the demand for residential properties is relatively consistent. In other words, everyone needs a place rather than a place to work. However, evicting tenants is costly and time-consuming. The profit ceiling may also be lower because commercial real estate owners tend to have more tenants who typically sign long-term leases. Furthermore, businesses will likely prove their ability to pay the lease with financial documents and records. 

More tenants may equate to higher gross revenue, but your responsibilities are more robust. Commercial properties have complex heating, cooling, and fire suppression systems. Most investors hire specialized management groups to maintain and fix issues that surface. 

When you approach a lender, you may discover the loan process differs. Commercial property investments are riskier than residential ones, and the lender will have a higher interest rate (which may be variable) to compensate for it. Additionally, they may require proof that you have successfully owned commercial property to demonstrate that you understand how to run them. Whereas the length of your home loan may span a period of 15-20 years, expect the terms of a commercial property loan to be between 5-20 years. 

Although economic recessions impact home values, commercial real estate investors are particularly beholden to the market. For example, the businesses that work in your commercial properties may go out of business. Most of them have chosen business entities such as LLCs to limit their personal liability. When an LLC goes out of business, you will not be able to go after their personal assets to recoup unpaid debts. 

Protect Your Investment With Auricchio Law Offices

Your ability to be successful in commercial real estate rests on your ability to lease out your properties. Because commercial leases are longer than residential leases, a well-drafted contract protects you and can be the foundation of a healthy long-term business arrangement. Auricchio Law Offices offers free consultations for anyone who wants to learn more about our residential and commercial lease representation.

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Auricchio Law Offices

Auricchio Law Offices in Chicago provides a complete range of real estate services. We facilitate residential and commercial real estate transactions, advise and represent condominium associations, and represent property owners in real estate litigation. Whatever your real estate issue, we will work diligently to achieve your goals in a timely and efficient manner.

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