Investing in commercial real estate: how to go about it?
As an individual, several solutions are available to you for investing your capital. Among the solutions available, real estate is known to be one of the most secure and stable. Within real estate investment, two main categories are to be distinguished: residential real estate and professional real estate. The first refers to all real estate intended for housing (apartment, loft, house, etc.). The second designates all the premises intended for the practice of professional activity. Among the premises for professionals it is commercial premises that attract individuals for capital investment. But how do you get started in commercial real estate investing?
How to invest in commercial real estate?
The first method for investing in commercial real estate is to invest in institutional real estate or private funds specializing in real estate investment. They are accessible via asset investments, such as when setting up a life insurance contract.
The second method is to invest directly in commercial real estate, that is to say, to buy commercial premises as one would an apartment or a house. This second method is, however, restrictive in the types of property in which to invest. Indeed, not all business premises are open to individuals for investment due to the minimum amount to be collected, which generally represents several hundred million euros.
Thus, commercial premises are certainly the best alternative when one wishes to invest in professional real estate. However, this type of property is not managed in the same way as residential premises, and this requires precise and specialized knowledge.
investing in commercial real estate- what to know
Investing in commercial real estate does not work the same way as residential real estate. For example, what determines the value of a commercial space is not its surface area but the rental profitability that may result from it. Thus, it may happen that commercial premises perfectly located in the city center in a busy street will sell for more than a much larger premise located on the outskirts of the city center.
The simple fact explains that commercial premises' profitability is, on average, twice that of residential premises. However, the capital gain in commercial real estate is generally lower than in residential real estate. It is thus a question of thinking well about its investment. However, commercial real estate offers many advantages over residential real estate.
Investing in commercial real estate- what are the advantages?
As mentioned earlier, the first advantage of investing in commercial real estate is the profitability of the investment. Indeed, on average residential real estate as reached profitability ranging from 3 to 5%. For commercial real estate, this profitability is generally 7%, to reach, in the best case, almost 10%.
The second advantage of commercial real estate is the type of lease put in place, or rather its duration. Indeed, it is not a question here of a 2-year lease on average as for residential premises, but of 9 years- a significant duration that ensures significant stability for the owner.
