What is 'Commercial Investment'

A commercial investment is an investment in a for-profit enterprise involved in the buying and/or selling of goods and/or services, with the expectation of generating cash flow. This type of investment can be assumed by an individual, group or institution. Frequently, a commercial investment is shared by a group of investors who combine assets to fund the investment

BREAKING DOWN 'Commercial Investment'

BREAKING DOWN 'Commercial Investment'

A commercial investment occurs when an investor commits money or capital to purchase, either entirely or on a partial/percentage basis, a for-profit property or business.

Pros and Cons of Commercial Investment

Some of the most common examples of commercial investments include real estate properties, such as apartment complexes, office buildings, hotels or industrial complexes.

Investing in commercial property can involve certain pros and cons. Some pros include good income/profit potential and relatively passive income..

In many areas, commercial and multi-unit properties tend to increase in value at a higher rate than residential properties. Savvy investors who have a knack for spotting up-and-coming areas on the cusp of rapid growth can get relative bargains before the local market soars. Of course, as with most things in real estate, it’s all about “location, location, location.” Your profit potential will depend in large part on the location, and how property values and rental markets in that area are performing.

Owning commercial property can be a mostly hands-off endeavor for the investor, if everything goes smoothly. Those who own large and/or multiple properties usually enlist a property management company to handle the day-to-day operations.

But there are also a few potential downsides, including that values could drop and unexpected emergencies or disasters.

 Even the most promising areas can suddenly take a turn in the wrong direction, and you could find yourself with a property that has dropped in value—or one with vacant units you are unable to rent.

Any type of property is subject to damages, breakdowns or other headaches you may not anticipate. This could range from a fire to a malfunctioning furnace. Depending on the situation, insurance may help you recoup part of the costs, but it is smart to have a repair/emergency fund to help cover the costs of any needed repairs. 

Franchises are another popular type of commercial investment. There are many low-cost franchises that require investments of $10,000 or less, which can be a good way to get experience in the commercial investment realm with a relatively small amount of initial capital.

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