Rockford Commercial Real Estate: A Good Investment

While many are skeptical of investing in Rockford commercial real estate due to the perceived higher risk compared to investing in residential property, commercial property can provide significant cash flow benefits, greater rental certainty due to longer rental periods and fewer ongoing expenses. If you do your research, practice due diligence and understand the risks involved, commercial real estate could be a valuable addition to your property portfolio – an option that you may not have previously had on your radar.

Higher return

Rockford commercial real estate generally provides a higher return on investment (ROI) compared to residential properties. According to CoreLogic (2015), the average rental yield for commercial properties, such as a warehouse, is between 8-10%, whereas the rental return for residential properties is 3.6% on average.

Longer lease period

The average lease for a commercial property is between 3-10 years, whereas the lease for a residential tenant may be just 6-12 months with no guarantee of renewal. Commercial tenants tend to stay in the premises for longer, particularly if they’ve invested some capital in acquiring the property from the outset. For example, if the tenant decides to upgrade the fit-out of the space by investing $50,000 into the project, this will provide you with some certainty and security of rental income which can facilitate your cash flow planning.

Fewer ongoing expenses

For commercial properties, the tenants typically cover rates such as council, water, insurance or body corporate fees, so there are fewer ongoing costs compared to managing a residential property.

Value-adding activities

For well-chosen commercial properties, tenants are likely to make improvements to the structure and layout of the space, which can increase the property’s value. As rent is reviewed annually, this means you can charge a higher rental amount to better reflect the upgraded premises following an improvement.

Price stability

The value of commercial real estate is set by expert property valuers. Commercial property prices have historically shown lower levels of fluctuation compared to other investment types.

Price appreciation

Lease agreements often contain a term for rent increases in accordance with inflation. Because valuations are determined by the level of rent paid, commercial property prices tend to rise over time.

Overall drawback, although the cost of upgrades will depend on the type of property, renovating a Rockford commercialreal estate, such as a retail or office situation, may be relatively expensive compared to renovating a home. This is because upgrades for a commercial property may require a greater scope of work for a larger area and include major tasks such as the removal of asbestos, fire and safety issues, changing the fit-out or restructuring the space to meet the tenant's business needs, whereas upgrades to a home may include inexpensive tasks such as painting or installing new appliances.