29 NOVEMBER, 2021

Investing in a commercial property can be a huge decision. It involves a higher investment, and the approvals required for purchasing one can be very different from that of a residential property. However, investment in a commercial property can give you a lucrative source of income and financial rewards. At the same time, investing in commercial properties have their share of risks too. So, is it worth it? Let’s find out.

If you are contemplating investing in a commercial property, here are some pros and cons to help you decide.

What can be called commercial property?

Commercial properties are real estate properties that are used for business purposes. Commercial properties include offices, shops and showrooms, warehouses, workshops, retail buildings, and shopping complexes.

Pros of commercial property investment

  • Rental income

Commercial property can be a great income source for you. Depending on the location, the rental income of a commercial property can be substantially higher. Moreover, the income from such properties is usually consistent and appreciative.

  • Easier lease terms

Commercial property has fewer governing laws and regulations. It allows you to settle the lease agreement quicker than that of a residential property. It provides more flexibility in lease terms and fewer hassles for finding tenants.

  • Easier to manage tenants

Commercial property is usually occupied for business, where the relationship between landlord and tenant is mostly professional. This makes it easier to manage tenants with fewer issues and arguments. Also, these properties are usually used during daytime hours, reducing the chances of receiving complaints at inconvenient times. Moreover, as the commercial establishment’s location is linked to its brand image, there is a combined effort to maintain the property from both parties.

Cons

  • Significant investment

A significant amount of money is needed to invest in a commercial property. The upfront costs of buying a commercial property are high and so are its repairs and maintenance costs.

  • Fewer tax benefits

Buying a commercial property does not provide any tax benefits. There are no tax rebates or deductions on the repayment of the home loan amount for commercial property.

  • Higher risk

Typically, people are not present on a commercial property 24/7, due to which there are higher chances of mishaps and accidents taking place. Also, there are higher chances of vandalism on commercial properties. On the other hand, as the footfall of people is higher on such properties, there can be a higher cost of maintenance and upkeep. You might even need a property manager to handle and manage the affairs of a commercial property.

Now when you know about the pros and cons of a commercial property, it would be easier to decide if it's a suitable investment for you. However, if you are reluctant due to the high risk involved, you can rather invest in house property. You can easily buy a home with a loan and repay it in equal installments once you have checked your home loan eligibility. Thus, if you are planning to invest in real estate, a home loan can make things easier for you.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.