Silicon Beach is quickly becoming a hub for commercial real estate. From Snapchat to Google, tech giants have decided to make Silicon Beach their home, but is buying commercial real estate just as lucrative as residential? We're breaking down the pros and cons to buying commercial real estate.
What is commercial real estate?
For those of you who don’t know, commercial real estate are properties bought specifically for use of business in Silicon Beach. These properties could include retail space, office buildings, warehouses, industrial building, apartment buildings and mixed use spaces.
Pros of investing in commercial real estate.
Income potential. Income potential is the biggest reason why people invest in commercial real estate. Commercial properties generally have an annual return off the purchase price between 6% and 12%, (in popular locations like Silicon Beach we see closer to 12% return). This is a much higher range than typically exists for single family home properties that generally give you between 1% and 4% at best.
Limited hours of operation. Ask any homeowner and they will tell you that the work never stops. Thankfully, when you buy a commercial property, barring any emergency calls at night for break-ins or fire alarms, you stop working when the businesses stop working. That means depending on your commercial property, you’ll get nights, major holidays and weekends off from worrying about your commercial real estate.
Cons of investing in commercial real estate
Professional help required. If you are a jack of all trades and a do-it-yourselfer then having a commercial property might be more stressful to you than its worth. More than likely than not you won't be entirely qualified or prepared to handle some of the maintenance issues yourself, so you’ll have to hire someone to do all of the things you can't. This extra cost isn't always ideal, but it’s something to consider when putting money aside to buy your property.
Bigger initial investment. Commercial properties typically are pricier and require more money upfront than residential properties. And unfortunately, the down payment is just one of the large initial expenses. You will likely have to renovate or repair parts of the property, decorate common spaces and keep money aside for any unexpected maintenance issues that pop up. Unlike residential properties, when you own a commercial property someone is relying on your time and money for their livelihood — which means higher stakes and higher stress.