Nowadays, many people are looking for ways to earn money passively. One way to do this is by investing in commercial properties. Commercial property investments can provide a steady source of income and give you something tangible to own.
If you’re interested in creating a long-term income stream, investing in commercial property is a great option. Not only can you earn money through rental income, but you’ll also have the right to own a physical asset. In this guide, I’ll show you how you can invest in commercial properties and earn rental income without any difficulties.
Ways to Invest in Commercial Property
Fractional property ownership
- Fractional commercial real estate ownership is a recommendation from industry experts, and it brings several significant benefits, including capital growth, rental income, and resale opportunities. The following key points outline how this type of investment works:
- Multiple investors pool their capital to purchase a shared commercial property, reducing the burden of the high ticket size that would otherwise be a concern for individual buyers.
- Shared ownership provides an opportunity for earning stellar returns and profits while also balancing risk amongst the investors.
- Grade A office spaces offer a strategic starting point, given the steady growth in commercial property throughout India.
- It is essential to identify reputable companies and tenants willing to sign long-term leases and make timely payments.
- Shared ownership of commercial properties ensures that everyone benefits from the appreciation in capital values, resulting in rising values and rental rates.
- Commercial properties are tangible, stable assets with steady market demand, which makes capital appreciation swift.
- Finally, individual investors can realize a substantial profit by selling the commercial property.
Regular commercial property investments
If you’re interested in investing in fractional commercial property ownership in India, you should know that it can be hard to find suitable investment models. Here’s what you should know if you’re an individual investor:
- Choose a commercial real estate unit
- Do your due diligence
- Sign the sale deed and pay the stamp duty
- Rent out the commercial unit
- Sign lease agreements
- Ensure good maintenance
- Collect rent and reap the benefits of steady break-even on your investment
- Benefit from both capital appreciation and rental returns
Before you start earning money from investing in commercial property, you should know about the different types of income you can earn. Active income comes from working, either as an employee or self-employed. Portfolio income can come from mutual funds, stocks, and other investments. Passive income comes from commercial property investment.
Ways to start earning
Pre-leased properties
- Investing in pre-leased properties means buying properties that are already rented out to tenants. As an investor, you have more control over your investment and can expect a predictable monthly income from rent. These properties offer lower risks because they are ready-to-move with tenants already in place.
- You can make a 20 percent down payment and may have the option to avail an 80 percent lease rental discount, if available. The minimum lock-in tenure is usually between 1-5 years.
- While pre-leased properties provide immediate returns with a 5-7 percent yield, they come at a higher price due to the monthly income already in place. However, if tenants do not renew their leases, you may have to find new tenants.
- It is important to note that pre-leased properties may have lower capital appreciation benefits, as they are sold at a premium.
Under-construction properties
- Investing in under-construction properties involves the risk of developers delaying construction. This can lead to projects stalling for long periods of time. However, certain commercial properties with prime locations, strong market demand and supply parameters, a good track record of the real estate developer, and a configuration that favors tenants present a good investment opportunity.
- For investors with long-term horizons, it’s an opportunity to take advantage of favorable circumstances for buyers. Under-construction properties can be purchased at significantly lower prices and with comparatively lower interest rates. This can result in a higher return on investment, with returns reaching up to 10-12 percent in some cases.
- The acquisition cost per square foot is handsome, and the returns are often higher than those of pre-leased properties. Additionally, there is a higher chance of capital appreciation, and construction-linked payment plans are often attractive. However, it’s important to note that there is a risk of delays in possession and finding tenants once the project is complete.
Ready commercial properties
When you choose a ready commercial property, you get it immediately without any delays or uncertainties. However, the cost of such a property is usually higher, which means your returns may not be as high as expected. You also have to pay the entire amoun upfront, which is an important consideration. Getting tetnats may also be difficultat times. The acquisition cost will depend on prevailing market rates. However, there is potential for capital appreciation. In most scenarios, return are unlikely to exceed 8 percent.
Conclusion
The key to success lies in a well-informed and strategic approach, aligning investment choices with individual financial goals and risk tolerance. As you embark on your commercial property investment journey, keep in mind the diverse options available and tailor your strategy to capitalize on the unique advantages each presents. With prudent decision-making and diligent management, earning from your commercial property investment can become a reality, providing a steady stream of passive income and potential for capital appreciation over time.
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