Commercial Real Estate, Is Retail Real Estate Investing Profitable?

Investing and owning commercial real estate can be profitable if managed competently. The types of commercial properties include stand alone storefronts, strip malls, restaurants, hotels and more. Depending on your personal financial goals, each type of commercial property can be profitable.

All business owners that are leasing commercial space should considering purchasing their own commercial property. Rent is one of the major overheads cutting into a small business owner’s profits. Owning the property you operate your business out of will allow your money to be invested back into yourself rather than lining your landlord’s pocket. If you run your business out of a strip mall the rent money received from the other tenants in the strip mall can pay your mortgage allowing your business to operate “rent free” and in many cases you can still profit above the payments owed to the mortgage company.

The commercial rental business does work differently than residential. Usually, commercial properties are leased by square footage priced per square foot. For example if you list your property for lease at six dollars a square foot and it is one thousand square feet the yearly rent would be six thousand dollars and the monthly rent would be five hundred dollars. In most states businesses are required to pay sales tax on the rent amount.

However some commercial rents are based on a share of profits, are on a sliding scale, or are completely different depending upon the agreement between the property owner and the renter. Unlike with residential renters, commercial renters will negotiate with the landlords on rent prices and terms. For example, many times build out costs are deducted from rental costs.

When deciding upon where and what kind of commercial real estate to invest in consider local trends. Is a new mall being built? If so the property around the mall is likely to increase and value and businesses will be willing to pay more for storefronts in that location. The resale value of that property will also increase, allowing you to profit even more from your original investment. If strip malls are becoming increasingly empty due to the increase of stand alone businesses in your area, their resale value may go down and renting out storefronts can be difficult.