Commercial real estate consists of properties used for business purposes, as different from residential which consists of properties used for residential purposes. However, the fact that commercial properties house businesses, companies, and industries, may not automatically make them business assets. So, is commercial property a business asset?
Is Commercial Property a Business Asset?
Yes, commercial property is a business asset. A business asset is a valuable item owned by the company. This may include commercial real estate properties or buildings. When a business owns a piece of real estate used exclusively for business purposes or as a workspace, this can be categorized as a business asset because it is used exclusively for business purposes.
Commercial properties are good business assets for a number of reasons, ranging from the high return on investment that they offer, to the wide variety of buildings that can be invested in, including offices, industrial, retail, and apartment complexes. These, and many other factors make commercial properties good business assets.
Why Are Commercial Properties Considered Business Assets?
The consideration of commercial properties as business assets chiefly stems from their usage in business and returns that could potentially accrue to them. In this regard, factors like income potential and just how tangible they are would have to be considered.
Income Potential
Commercial real estate has a higher income potential than residential. While commercial properties are able to give an annual return of between 6% and 12%, residential properties can only give an annual return between 1% and 4%, at most. This makes them a better business investment.
Also, commercial properties offer a means of stable and regular income. Leases on commercial properties can last for up to a decade, so you can always be sure of getting a specific amount of money as rent yearly until the lease expires. This income stability helps protect you from a financial crisis.
Diversification
Diversification is important in any investment portfolio, and fortunately, there is a vast range of property types that can be invested in. They include:
- Multifamily (mid-rise apartments, high-rise apartments, student housing, walk-up, garden apartments)
- Office (Class A, Class B, and Class C office buildings)
- Industrial (Heavy manufacturing, bulk warehouse, flex individual)
- Retail (shopping centers, out parcel, regional malls)
- Hotels and hospitality (Resort, full service, limited service, extended stay)
- Land
- Special purpose (amusement parks, churches, schools)
This variety of buildings gives you the chance to diversify your portfolio, thereby spreading out your sources of income. Diversification also helps protect your investments. For example, if one property type market falls, other property types might be unaffected and blooming, and you can easily fall back on them.
Additionally, commercial real estate is not directly linked to the stock market and other markets in the economy. This means that falls or rises in the stock market are not likely to affect, therefore your investment is protected. Commercial properties also have the potential to offer a higher income than dividend stocks and bonds.
Tangible Asset
Unlike stocks and bonds, whose values can increase or decrease very easily, commercial real estate is a tangible asset, whose value is not volatile, and can be relied on for a long time. Yes, commercial properties are affected by different factors, including depreciation, rise/fall in property market value, tenant occupancy, and rent payment.
However, all of these factors only affect the yield of the property and not its value. The value of the property is never going to reduce to zero, as long as there is land. Besides, the effects of these factors can easily be mitigated by proper property management and maintenance.
Also, because commercial real estate is a tangible asset, it can also be used to produce other goods and services of value, thereby increasing its value altogether.
How to Make Your Commercial Property a Good Business Asset
The points discussed above all point to the fact that commercial property is a good business asset. However, this does not directly imply that all commercial properties will give a good return on investment. There are certain things that can be done to increase a commercial property’s yield and make it a better business asset.
Hire a Real Estate Agent
Real estate agents have only one job – to assist sellers and buyers of properties in selling and buying their properties. They help showcase property to the right market, thus increasing its chances of getting sold, bought, or leased.
If you are looking to lease out, sell or buy a commercial property, then you should hire the services of a good agency, like the Si Vales Valeo Real Estate. This would automatically ensure that your property gets the exposure it deserves and also ensure that you get the best rent or sales price.
Consider Location When Setting Rent Price
This factor majorly comes to play before a commercial property is bought, and it also plays a role in property income after its purchase. Rent prices of commercial properties vary from one location to another, as a result of the economy, tax, inflation, and utility costs.
So before setting a rent price for your commercial property, you should not only consider the prices of similar commercial properties in the local market but also consider the tax rate and utility costs in that particular location.
For instance, in Kentucky, the property tax rate is 0.83%, while in Illinois, the average property tax is about 2.16%, which is almost double the national average. This means that rent prices in Kentucky should not be as high as that of properties in Illinois.
Reduce Costs
Operational costs consume a huge part of the income of a commercial property, thus reducing the amount of money that you get in terms of profit. To prevent this, you could reduce the amount you spend on utilities and property management. For instance, you could switch to electricity generated by solar energy or install energy-saving bulbs.
Related Questions
What Commercial Property Appreciates the Most?
The commercial property type that appreciates the most and gives a good return is land. This is because while buildings and structures would depreciate and reduce in value over time, land is non-depreciable.
Conclusion
Commercial real estate investment comes with a lot of risks. However, it is one of the best forms of investment and serves as a tangible and fixed business asset. To improve your chances of succeeding in the field, you should hire the services of an agency, such as the Si Vales Valeo Real Estate.
