What is a Commercial Investment?
Commercial investment is an investment in a for-profit enterprise involved in the buying or selling of goods and services, with the expectation of generating cash flow. An individual, group or institution can assume this type of investment. Frequently, a group of investors who combine assets will fund a commercial venture.
Understanding Commercial Investment
A commercial investment occurs when an investor commits money or capital to purchase a for-profit property or business. This enterprise may be a partial investment as part of a group effort or may be purchased by a single investor. Some of the most common examples of commercial investments include real estate properties, such as apartment complexes, office buildings, hotels or industrial complexes.
Franchises are another favorite type of commercial investment. Many low-cost franchises require expenditures of $10,000 or less, which can be an excellent way to get experience in the commercial investment realm with a relatively small amount of initial capital.
Pros and Cons of Commercial Investments
Investing in commercial property can involve several pros and cons. Two of the positive aspects are measurable income, or profit potential, and relatively passive income.
Savvy investors who have a knack for spotting up-and-coming neighborhoods 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. In many areas, commercial and multi-unit properties tend to increase in value at a higher rate than residential properties.
But there are also a few potential downsides, including that values could drop and unexpected emergencies or disasters can occur. 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 maintenance could range from fire or flood damage to a malfunctioning air conditioner or furnace. Depending on the situation, insurance may help recoup part of the costs, but it is smart to have a repair or emergency fund to help cover the costs of any needed repairs.