Six Major Advantages of Commercial Space over Residential Property

Real estate has become a popular investment because it is secure and offers great returns. Investing in both commercial real estate and residential property can help increase your portfolio. However, there is much difference between commercial and residential real estate which may take time to understand each. While residential property investment might seem better for some investors, most investors prefer investing in the commercial real estate. The great feeling of being a residential landlord can be very much enticing. However, commercial space has more advantages over residential property. The major challenge in commercial property is getting the right tenant. Once you get the tenant for your space, you enjoy many benefits that a residential property investor can’t get.

Here are the top six benefits of commercial space over residential property

Long Term Lease

Most residential leases are for a one year period after which the tenant has the option to renew for another year or choose to go month by month. It is rare for residential landlords to get a two or more year lease. However, commercial property leases are less than two years. Long-term leases for commercial property benefit both the tenant and the landlord. Long-term leases allow tenants to maintain the same overhead expenses over a long period. Tenants locking down onto traffic locations will want a long-term locked down a plan for their business. You also get to benefit from long-term leases as the landlord because banks prefer long-term leases when considering someone to refinance.

Negotiation and terms

There are strict regulations in the residential real estate market. Though the regulations are for the right reasons, they make the commercial real estate a better investment. Commercial leases give you an opportunity to make the deal with options to consider. Securing a lease more readily becomes easy in commercial real estate than residential property.

Lucrative Rent and CAM Charges

Residential property rent charges are very simple and straightforward. It is a monthly fee and what it includes, and you’re done. On the other hand, commercial property leases can be different. Rent control laws that affect residential property leases are not here. Commonly, a tenant that is new in a business is offered a discount for a few months while getting their business off the ground. The rent is also expected to go up and over time it can rise quite a bit. Commercial property leases can have a ratchet clause; meaning the rent can increase every year by an agreed percentage. Tenants mostly pay a portion of utilities, especially the water bill. In some areas, tenants pay the Common Area Maintenance. Triple Net Lease is also not uncommon in commercial leases. This is when the tenant has to pay the rent and all the expenses.

Improvements on Building

In residential property, tenants have few personal touches when they move in. However, commercial spaces require more improvements. Space has to be tailored to fit the needs of the business being operated there. The tenant will work in the space to ensure it fits their business needs. Majority of the fit-out expenses will be paid by the tenant.  By committing more investment to your property, the tenant won’t leave the investment any time soon.

Increased Collateral Value in Commercial space

The main collateral on a residential lease is the tenant’s deposit. This security deposit is mostly 1 and ½ the monthly rent. If you get to a situation where you have to evict a residential tenant, you will remain with the security deposit in back rent alongside the damages to the apartment.  For commercial lease, you can take whatever deposit you agree upon with your tenant. You can even get r month’s rent in security. Other things that can be taken as collateral in commercial space include improvements, personal guarantee and remainder of the lease due to acceleration.

Use of Exclusivity in Commercial space

Both the landlord and the tenant can benefit from exclusivity. Exclusivity limits who the landlord can lease to in areas close to the tenant and also limits the locations where a tenant may open if they vacate the unit. This benefits the tenant by limiting their competition. As a landlord, you can also easily get a new business owner if the tenant vacates the space.