According to savvy property investors, the Indian real estate sector is expected to grow in 2024-2028 at a tremendous rate.
Financial experts expect the Indian economy to reach $7 Trillion by 2030, and real estate will be a major contributor. Investing in the real estate sector comes with several perks, such as high ROI, capital appreciation, and passive income. Today, we will cover everything about commercial property investment, so let’s begin.
What is Commercial Property Investment?
Commercial properties are those properties that are used for business purposes such as industrial properties, office buildings, medical centers, retail stores, warehouses, etc. Investment in these properties to generate profits is called commercial property investment. And the best thing is that there are several ways through which you can invest in commercial property. Let’s uncover those different ways in detail for better understanding
Different ways to Invest in Commercial Property
Direct Investment
In direct investment, one may purchase property individually or as part of a group. Direct investment gives you full control over the property, which means you have the power to sell, rent, and manage the property. Also, you will be responsible for negotiating lease agreements, which include setting lease duration and other terms and conditions with businesses, retailers, and other organizations. Direct investors also have to take care of the property management tasks such as repairs.
Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts (REITs) is a company that owns, operates, and manages high-income generating real estate properties. They collect the rent generated through these properties and distribute it to their shareholder as dividends. So, it gives investors a great opportunity to earn income from high-priced Real Estate Properties. Unlike direct investment, in REIT you do not need to go through the hassle of managing the property.
Real Estate Crowdfunding
Real Estate Crowdfunding is a way through which small investors put their money together on a commercial property. The money is usually raised through online internet platforms and social media sites. For a better understanding, you can consider it as equity in which an investor becomes a shareholder of a company.
Private Equity funds
Private Equity Funds are investments in privately owned companies, which means these companies are not available on the stock exchange. Generally, private equity is funded by institutional investors and wealthy individuals. This is because it requires a minimum amount of investment for a fixed period.
These are some ways through which you can invest in commercial real estate, but they come with pros and cons. So, before investing, take advice from a real estate consultant and make an informed decision.
Also read, What Type of Commercial Property is Most Profitable?
What are the Merits of Investing in Commercial Properties?
Investing in real estate can be a rewarding and profitable experience for those who are willing to put their money and effort into it. Here are some pros of investing in Commercial Properties.
1. Cash flow
A steady cash flow is the key benefit of investing in commercial properties. For example, commercial spaces are mostly rented to businesses and retailers who pay every month. Also, the tenants enter into a lease agreement, which is usually 5-10 years. And according to the leasing norms, tenants can’t cancel the lease in between. So, you will get a rental income for a long time.
2. Appreciation
Commercial property has the potential to get appreciated over time. When the surrounding areas develop, property demand increases, which eventually provides you with a good return on investment. Also, commercial properties are less likely to be affected by inflation because, during inflation, property prices rise. So, you will benefit from investing in commercial property even during inflation.
3. Tax benefits
Commercial Property can help you save money on expenses such as mortgage interest, property tax, and other tax liabilities. Under section 24(b) of the Income Tax Act, you can avail of a discount of 30% on acquiring a loan for a commercial property. Also, you can claim the interest paid on a commercial loan if you are using the loan for the construction, purchase, or repair of a commercial property.
What are some challenges associated with Commercial Real Estate Investments?
Investment in commercial real estate comes with its own set of challenges. You should know about these challenges as well before making a decision. Here are a few of them.
1. High cost
One needs a good amount of money to invest in commercial property. They are more expensive than residential properties, which makes it difficult for people to invest in commercial properties.
2. Limited Liquidity
Commercial property lacks the liquidity of stocks and bonds. Also, a good amount of time is required to sell a commercial property, and there are fewer potential buyers of a commercial property.
3. Difficulty in the selection of a property
A good market research is required to find a right commercial property. A new investor may find it hard to seek one due to a lack of knowledge. However, with the help of a commercial real estate consultant, you can discover the right property to invest in.
Final words
So, these are some of the basics of investing in commercial property. We hope you get an idea of whether you should jump into buying commercial properties. If you want to delve deeper into the topic, stay tuned to our blogs. We will be more than happy to help you navigate the world of commercial real estate.
