People often start investing in real estate by acquiring an income property. There’s a misconception that investing in commercial real estate is the preserve of real estate tycoons. But it’s not! Investing in commercial real estate has many advantages, and is more accessible than you might think.
The main commercial real estate families in which you can invest
The commercial real estate sector is vast and includes many different types of property. These include
- Stores and retail outlets
- Office and coworking spaces
- Industrial spaces and production areas, such as workshops
- The restaurants
- Warehouses
- Residential buildings with more than 5 units
Good reasons to invest in commercial real estate
We highlight the reasons for investing in commercial real estate and present the main advantages. If you’re thinking of acquiring a commercial property, these few arguments may convince you to take the plunge into real estate investment, or to diversify your investments.
Greater flexibility in leases
In residential real estate, the landlord must use a lease issued by the Régie du logement and comply with the rules in place. Commercial real estate allows greater flexibility in lease terms between tenants and landlords. In the event of conflict, the Civil Code of Quebec applies. There are gross, net, double net and triple net leases. It would be complex to detail each of these types of lease, but keep in mind that the more a lease is net, the less the landlord has to pay. The tenant can assume the costs of property and school taxes, heating, maintenance, etc., depending on the terms of the lease you sign. Also, the rental price of a commercial premises is not determined in the same way as that of a residential dwelling. Each investor is free to assess the value of his premises, and each tenant can negotiate the rental cost. It’s a business relationship between two entrepreneurs.
Commercial real estate is a safe investment
When you invest in commercial real estate, you’re less likely to suffer from unpaid tenants. Not only are unpaid rent charges rarer, but even when they are, commercial rent is a priority claim. Commercial leases are secured by a personal or business guarantee.
A building that easily pays for itself
Commercial properties easily pay for themselves through higher monthly revenues. This is especially true if you sign a net or triple-net lease.
Stable tenants for greater peace of mind
Typically, commercial leases are signed for many years. The companies that have set up shop in your commercial building have invested in developing it according to their needs and brand image. What’s more, they’ve built up a clientele in the neighborhood, and their employees are accustomed to the location. Moving is a risky business decision. Tenant businesses are therefore more inclined to stay in the premises for a very long time.
Less responsibility
In commercial real estate, tenants have more responsibility for the building. What’s more, their limited operating hours mean you don’t have to worry about being contacted in the middle of the night!
Criteria to consider before buying a commercial property
As with any real estate investment, due diligence is essential before proceeding with a purchase.
You should also take two criteria into account to properly evaluate your investment:
- The location of the commercial building: Is it well situated? In the case of a retail store or restaurant, is it on a busy commercial street? Is there easy parking nearby? The better the location, the easier it will be to rent at a good price.
- Current occupancy of the premises: It can take some time to find a tenant for vacant commercial premises, and this entails advertising costs. If you buy a commercial property that’s already occupied, you already know what the return will be.
Let the Jean-Guy Ayotte team advise you on the purchase of commercial real estate
Commercial real estate financing and leasing laws differ greatly from residential real estate. To find the ideal premises that meet your business needs or investment criteria, call on our team of real estate brokers.
Our expertise will ensure that your commercial real estate investment is profitable, safe and successful.