The real estate market has been rather unstable in the recent past. This has resulted in many seasoned investors to back out and wait for the most opportune moment when the market is more predictable, to make their investments. The significance of this watchfulness of expert investors is that they eventually make more money in deals as there are few competitors that they have to contend with. Though investing in residential and commercial real estate has several similarities but there are still some critical differences which one should know if you want to succeed in the deals.
So what are the most salient features of investing in residential properties? Location is perhaps the single most important facet of this kind of investment which can immediately decide whether the investment is a wise decision or not. This is more complicated than what it appears to be. The ultimate value appreciation of a property depends on the kind of developments that happen in the area and the kinds of value addition that the neighborhood offers. For example, a shopping mall should ideally be located near a residential area and have travel-friendly roads. On the other hand, manufacturing facilities can always be located far away from residential areas and be approachable by rail or connecting highways.
An important aspect of investment in commercial properties is to study the tenant scenario. For example, tenants willing to sign long-term lease agreements are safer than those who want only short-term deals. Tenants who want short-term agreements usually are unsure of the kind of business that they are operating and want the quickest exit route in place rather than getting into any long-term commitment. This means that you need to get the right mix of stable and trustworthy tenants to ensure that rent collection even in long term would never be a problem.
Most investors of commercial real estate know that this game is played long term and requires quick equity building with the property they are investing in. This kind of investment is not for individuals who are looking for quick short term value appreciation of the property, as it takes a long time for the value of such properties to rise. With time, the owner continues to pay his mortgages which also improves the equity scenario he has with the property. Wise investors know that the best strategy is to correctly assess the time period needed for them to wait till the property allows them to meet their financial goals.
Like residential real estate investments, commercial property investments also entail capital expenditure. One should bear in mind that there would be regular maintenance charges. Highly expensive repairing and improvement jobs and more are envisaged. Thus the individual should be equipped with adequate funds to meet such mandatory expenses. Investing in commercial properties is a great opportunity to make high income, but, you need to know the market thoroughly and understand the various implications of the market dynamics.