The main areas of focus for those looking at commercial property investment are valuation, cash flow, and tax deductions. Although these are all important factors, I believe that in the main there is an element of confusion. Let me explain.
I often hear, in property investment, that a simple property, on average, is a “no money down” investment, and this Summerside property perhaps requires “no money down”. But the simple fact is that the true nature of commercial property investment is such that most finance is required upfront, at a given rental level. When you understand this, commercial investment real estate is very different from residential real estate.
In residential real estate, you either have ongoing household income, less regular contributions to your superannuation, pension fund, and the like, or you have a lump sum and lots of underwater equity.
Commercial property investment is different. It is the difference between regular statement results and true wealth, and I think that the tide is rising in favor of those investors who understand this.
Investors who buy a property with no money down certainly don’t understand residential real estate, and they are investing at a far more complex level. It is property, after all, which guarantees the income stream, and the lenders need to know that their loaned money will be repaid.
There is a fundamental difference in commercial property investment. If your parents or grandparents demonstrated the absolute value of a commercial property as an investment for their retirement, it is far from impossible to find a similar vehicle today.
What is important to understand though is that this difference does not necessarily mean that commercial property is any less valuable as an investment. Rather, it means that the higher the rental income the greater the penalty should be should the property ever be vacant due to the tenant being forced to vacate and find something cheaper in a different location.
Should the rent naturally fall then the investor loses money? At one point commercial property can perform so well that there is no wonder no-money-down commercial investments are the subject of so much attention. If the rent just doesn’t hold up, the investor suffers heavy losses – no matter what the constructed value of the property, which is rarely the case.
This is why there is no right or wrong answer to the question as to whether commercial property investment is for you.
The typical commercial property investor will say that based on the rents being charged there is a clear case for continuing to invest, as there is strong potential for strong growth. The owner of the property and the property manager will, in truth, argue that the current economic climate makes further detailed analysis about the potential for the property to perform all but impossible.
As a commercial property investor, you will come across these facts time and again. So, to move on to answering the question to true whether the commercial property is a good investment for you, it is perhaps worth examining in some detail the arguments for investing in commercial property. This will hopefully avoid the false claims of commercial property investors.
So, the bottom line is that commercial property investment is an extremely varied investment opportunity. Just because you may feel confident that your existing circumstances may have given you the confidence to invest in commercial property, does not mean that all the complicated calculations about the property do any good. The bottom line is that commercial property is a high-risk investment. If you do not attempt to take the risks associated with these investments, you may end up submitting a loss on the property
