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Defining Commercial Investment Properties

Defining Commercial Investment Properties

Understanding what constitutes a commercial investment opportunity is crucial to being able to reap the many benefits that a successful investment carries. The skilled team at Private Lending Group, Chicago’s premier hard money investment property loan provider, has compiled a basic guide for navigating commercial investment properties, as well as their potential risks and rewards.

Commercial Investment Property Risks vs Rewards

Retail Buildings

By purchasing or building retail space, you are investing in the future of business in the area. There are many things to consider when building or buying real estate, such as:

  • Foot traffic in the area
  • Transportation and parking accommodations
  • Success of the building’s previous tenants
  • Localized growth and other developments
  • Type of retail that is present or will likely rent the space
  • Difficulty of finding renters and potential rent-free downtime
  • The risk of tenants not paying

Office Space

Unlike with retail, office spaces are often considered to be a more stable investment; however, there are risks involved with owning office space. These include:

  • Potential duration between tenancy
  • Tenant success determines lease longevity
  • Location, location, location
  • Growth/decline of local business

Industrial Buildings

The term “abandoned warehouse” wasn’t idly chosen; warehouses and industrial buildings are among the most likely commercial building types to become purposeless and abandoned. Considering industrial buildings requires the investor to look at the following:

  • Sustainability of industrial market, businesses, and nature of industry
  • Analysis of risk-to-rent ratio
  • Operating costs of facility

Housing

Not all housing is residential real estate; due to the large building size associated with most apartments and condominiums, the building itself is categorized as a piece of commercial real estate. Risks associated with commercial housing include:

  • Issues with tenancy
  • Higher turnover of units
  • More hands-on management needed than commercial space
  • Higher upkeep costs associated with housing

General Commercial Property Risks

Regardless of the type of commercial real estate you decide to invest in, there are certain risks that you will take on. In essence, commercial real estate is not for the risk-averse, which means that the profit margins are higher for those able to effectively manage their properties. Some of the threats that investors frequently face include the following:

  • More people on site = More risk for legal liability
  • Higher operating costs associated with upkeep, maintenance, and repairs
  • Initial investment wraps up money into the ownership of real estate
  • Heavier commitment on time and maintenance, often requires property management or team of individuals to run
  • Reliance on third-party contractors for most maintenance and repair

Get Started Today

If you’re still eager and awaiting your chance to break into the Chicago commercial real estate investment market, then you will need loans to get started. Contact Private Lending Group to work directly with investors that know and understand the business and want to get you started on your investment as soon as possible, rather than making you wait 2-6 months, as a bank could.

Click here to apply for an investment loan.

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