Most people who buy rental properties buy residential properties rather than commercial ones. This makes sense, being that most people have the experience of owning their own homes and are then able to parlay that experience into owning homes that they rent out. But owning homes is not the only way to invest in the real estate rental market. Another option is to buy commercial properties and rent them out. And actually, there are some key advantages of buying commercial properties that make this an appealing option for many investors.
You'll have a larger cash flow with fewer properties
With a residential rental, you might make a few hundred dollars per month on each unit once your expenses are paid. You have to accumulate quite a few residential units in order to have a substantial income. With a commercial space, the rent is a lot higher, and you tend to make more money off each rental. So, you can have a substantial income with just a couple of commercial rentals, whereas you would need many residential rentals to accumulate that same monthly income.
You have the option of NNN leases
There is a type of commercial property lease known as an NNN lease. This lease has the renter pay for all building maintenance, property taxes, and insurance. With an NNN lease, you can have a very hands-off approach as a commercial real estate investor while also lowering your liability. Not every commercial property owner chooses to give their tenants an NNN lease, but it's nice to know it's an option. This is not usually an option with residential real estate.
You can let tenants customize the building
When you own a rental home, you are often left guessing what tenants would like as you remodel. With commercial real estate, though, it's typical for the renters to specify what they would like done to the building and to then make changes, as needed, to accommodate their needs. In other words, you won't typically be the one painting walls and looking for the perfect furniture for a commercial space. If you're not someone who loves construction and interior design, this is good news!
There are a lot of advantages of buying commercial properties, and they are worth exploring. If you've only ever considered residential rentals before, consider thinking outside the box and investing in a few commercial rental properties instead. It can be a smart move.