Revolution Brokers outlines some of the pros and cons of being a commercial landlord.
For non-professionals, the immediate thought is to enter the residential market, but investing in a commercial property is something that more people might want to consider and something that is becoming increasingly more accessible with the help of peer to peer platforms, in particular.
When buying a residential property, it is, in the vast majority of cases, going to be empty. This means first refurbing the property and then finding tenants. With commercial property, however, it is common for existing tenants to remain in place even when ownership of the property changes hands, thus reducing the initial void period and all of the admin that comes with finding the first tenant.
However, there are also benefits to sourcing a new commercial tenant. With a residential property, rent is usually paid one month in advance. With commercial rentals, tenants will often pay three months in advance, thus creating a more reliable and immediate revenue stream.
In the same vein, commercial leases tend to be longer than the 12-month average common with residential rentals, with tenants often signing up for years at a time.
Whereas residential landlords are responsible for paying all maintenance and repair bills for their property, commercial leases often state that the tenant bears this responsibility and all associated costs.
Despite these advantages, there are, of course, some downsides to commercial investment.
When a tenant vacates a commercial property, it often takes the landlord much longer to find a new tenant than it does in the residential sector. And once a tenant is identified, the due diligence, checks and processes involved mean it can be a long time before they actually move in.
Commercial tenants can run out of money – go bust. When this happens, it can be difficult and pricey to remove them. Plus, with higher average rent, arrears can be far more costly for the landlord.
Finally, the overall processes and legal elements of commercial leasing are far more complex than in the residential sector. This means they’re more expensive to complete and that the timeline of getting a new tenant into the property and paying rent is much longer.