Commercial property has traditionally been seen as a sound investment. Initial investment costs for the building and costs associated with customization for tenants are higher than residential real estate. However, overall returns can be higher, and some common headaches that come with residential tenants aren’t present when dealing with a company and clear leases.
Commercial property investors can also utilize the triple net lease, whereby expenses such as real estate taxes, building insurance and maintenance are borne by the company leasing the premises. This advantage is not available to residential real estate investors.
In addition to favorable leasing terms, commercial property tends to benefit from more straightforward pricing. A residential property investor must to look at a number of factors, including the emotional appeal of a property to prospective tenants. In contrast, a commercial property investor can rely on the income statement that shows the value of current leases, which can then be compared against the capitalization rate of other commercial property in the area.