Don’t make the mistake which many non-experts in real estate investing make: namely, don’t think that real estate investing is all about investing in residential real estate. To the contrary, investing in commercial real estate for rent can be an equally profitable or even more lucrative real estate investment strategy. As a real estate investor striving for success, you should keep your mind open and explore all available options to make money through real estate investments, whether through residential properties or commercial properties.
As investing in commercial real estate for rent might not be as intuitive as investing in residential real estate property for rent, we are here to help you find the best ways to make money through this investment strategy. First, let’s take a look at how commercial real estate for rent makes money for real estate investors is much of the same way as residential real estate. Then, we’ll explore ways to make even more money from commercial real estate properties.
How Commercial Real Estate for Rent Makes Money for Investors
1. Rental Income
After all, commercial real estate for rent is commercial real estate properties which you build or buy with the purpose of renting out to tenants. In this sense, it is not much different from residential rental properties. The only major difference is your tenants. With residential real estate for rent, your tenants are people who want to live in your investment property. With commercial real estate for rent, your tenants are businesses which want to obtain from you offices, retail space, storage place, parking spaces, or any combination of those. You make money from renting out your commercial income property, so you should make sure to choose a strategic location (where businesses want to be located) and to choose good tenants (businesses which will be paying their monthly rent regularly and in full).
2. Real Estate Appreciation
Similar to residential rental properties, commercial real estate for rent also experiences real estate appreciation over time. Indeed, commercial real estate properties can undergo much stronger and faster appreciation than homes if their location becomes a new industrial, commercial, or trade hub. Thus, commercial real estate investors should choose the location for their commercial income properties carefully by analyzing both current traffic and future prospects for development and growth. After all, appreciation is the way to make big money in real estate investing and become a real estate tycoon.
Related: 6 Things to Know About Real Estate Appreciation
How to Make Even More Money with Commercial Real Estate for Rent
While commercial real estate for rent could be making you relatively passive income through rental income and real estate appreciation, there are certain things that you as a commercial real estate investor can do to boost your rental income.
Related: What Are the Best Ways to Make Money in Commercial Real Estate for Rent?
1. Optimize the Rental Space Use
The first way to boost your commercial rental income is to optimize the use of rental space within your commercial property. In case you are buying a commercial building which has not been finalized yet, you can divide the interior space in a smart way to create as many offices and stores as possible and reasonable. Optimize the parking spaces too. Don’t make them too small and thus uncomfortable, but do not leave them too spacious either. In this way, you can secure that each office gets a parking slop, for which you can charge in your rent.
2. Provide Additional Parking Spaces
Actually with commercial real estate for rent, you don’t have to offer parking spaces to each and every tenant. You can decide to keep the parking spaces separately, and rent them out as independent units. You can rent them out on daily or monthly basis to either the businesses in your commercial property or other individuals. This is definitely a smart and fully legal way to make extra money from your commercial real estate property.
Related: Mansion Tax Causes NYC Real Estate Sales to Drop
3. Offer Additional Services
In addition to renting out offices with or without parking spaces, there are other services which you can decide to offer for your commercial real estate for rent and charge additionally for them. For example, you can include (for a fee) or exclude trash removal from the lease contract. You can provide maintenance (for a fee) for your commercial income property or leave tenants take care of this. For any additional service that you decide to offer optionally, you are able to charge your business tenants a bit more rent. These small incremental increases can lead to a large boost to your monthly rental income if you have a large number of commercial units for rent.
4. Provide Advertising Space
The large difference between residential real estate investing and commercial real estate for rent is that in the latter case your tenants are businesses. Similar to you as a commercial real estate investor, your tenants in the form of businesses are also looking for ways to make money. You, as a good landlord, should try to help them achieve this goal. How? By providing them with a space to advertise their business right outside their office! For a fee, of course… To do that, you can install a billboard outside your commercial property and offer it to your business tenants at a preferential rate. In case none of them is interested in advertising there, you can offer the advertising space to other businesses. They will be happy to advertise on the outside of a commercial real estate for rent as both the employees and the customers will be seeing their ad on daily basis.
5. Enjoy Tax Deductions
Last but not least, don’t forget available tax deductions. Similar to residential real estate investors, commercial real estate investors can also enjoy certain tax deductions. Make sure to study the local legislation of your investment location of choice carefully to ensure that you exploit all opportunities to decrease your tax bill. To give you a small hint: You might want to invest in commercial real estate for rent as a company rather than as an individual because the corporate tax rates are generally lower than the individual tax rates.
Related: Why Real Estate Investing Is One of the Best Ways to Make Money
If you are considering becoming a real estate investor, don’t limit yourself to residential properties only. Explore the available commercial real estate for rent options too before you make your final investment decision. Actually the best real estate investment strategy is probably going for both residential and commercial properties as you get to expand and diversify your real estate investment portfolio and spread the risk.
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