When talking about real estate investing, most people think about investing in residential real estate. In this way, they miss a very important opportunity for making money through real estate investments: namely, commercial real estate for rent. Commercial real estate for rent is not necessarily the first thing that comes to the mind of real estate investors for obvious reasons: there are way more people who need a place to live than profit generated businesses. Nevertheless, commercial properties for rent definitely have their tenants and are not less able to generate income and profit for their real estate investors than residential real estate. You just need to know the best ways to make money in commercial real estate for rent. To learn those, continue reading below:
1. Renting out commercial spaces
After all, commercial real estate for rent is not so different from residential rental properties. The most obvious and straightforward way to make money from it is by renting it out to businesses and charging them with a monthly rent, which from your point of you will be your rental income. Depending on the type of your commercial income property and its location, you could rent out offices, retail space, storage places, parking spaces, or any combination. The mechanism here is simple or at least very similar to investing in residential investment properties if that’s what you are used to as a real estate investor. You buy a rental property, prepare it for use, advertise it for rent, find tenants, rent it out, and start collecting rental income. One of the main challenges which investors in residential real estate frequently face is having to deal with tenants who might delay rent payments, damage the income property, move too often, or even just disappear. You will be happy to hear that that’s not the case with businesses which tend to take matters more seriously and which generally make for better tenants. After all, it’s the home of their business – their way of making money – that’s at stake.
2. Optimizing the space use
Directly related to the point above, another way to make excellent money from commercial real estate for rent is to optimize the use of the space within your commercial property. Maybe you will buy a commercial building which has not been fully finalized yet, which allows you divide the space interior into as many offices or retail stores as you wish. The same holds true for the parking spaces. Be smart! Don’t make spaces too small to the point where they become uncomfortable, but at the same time don’t allocate more space per office than needed. While it is true that commercial spaces are usually rented out by the square foot, your future tenants will appreciate a well-designed space in which they don’t end up paying for 500 square feet when they can actually practically use only 300 square feet.
3. Offering additional services
There are a number of ways in which you can rent out spaces in a commercial rental property. For instance, you can rent out offices with or without parking spaces; you can include or exclude trash removal from the lease contract; you can provide maintenance or require the tenant to take care of all required fixes. Actually, supplying some of these as additional services could be a great way of making money with commercial real estate for rent. You could offer only offices for rent in your commercial building while retaining the parking lot to provide parking places on hourly or daily basis. Alternatively, you could propose your business tenants to pay for the use of few parking slots on monthly basis (together with the monthly rate) at a discounted rate, in which way you will benefit from the guaranteed occupancy of your parking lot. Similarly, you could offer the possibility of collecting and disposing of the garbage on behalf of your tenants and then charge them a slightly higher fee than what it would cost you to do it on per unit basis. Most businesses will be willing to pay this extra amount just so that they don’t have to deal with the waste issue on their own.
4. Providing advertising space
Even if you rent out the office or retail spaces within your commercial property, you will still retain control of the area outside and the common space inside the building. Instead of just keeping it empty, you can easily make money from it by offering advertising places for the businesses operating from your property or for other clients. For example, you can install a billboard on the outside and offer it for monthly subscription. Indeed, commercial real estate for rent is an excellent place to advertise as you get a lot of traffic through it. Not only the employees of the businesses renting from you but also their clients will be coming and going out on daily basis.
5. Taking advantage of available tax deductions
Not only residential real estate investors can save up money by using tax deductions. Owners of commercial rental properties can also become tax efficient. There are several laws which give the opportunity to minimize the amount of tax paid on commercial real estate for rent. One example is the fact that it is better to invest in commercial real estate as a company rather than as an individual because corporate tax rates are generally lower than individual tax rates. In order to figure out the best way to make extra money in commercial real estate for rent (by saving on taxes), be sure to study the local tax legislation and regulations in your particular area.
6. Enjoying real estate appreciation
Not only residential rental properties experience real estate appreciation over time; so do commercial properties as well. Actually in many cases commercial real estate might appreciate much faster and more significantly than homes if its location turns into a new industrial or trade hub. So, when choosing the location for commercial real estate, a real estate investor should look not only at the current traffic there but also at the future prospects for development and growth.
One of the most wonderful things about real estate investing is the endless opportunities which it offers. One option which often goes unrecognized is commercial real estate for rent. However, any investor should consider it as an alternative or a complementary investment strategy to investing in residential real estate properties. For more tips on investing in real estate, make sure to check out Mashvisor regularly.