Broadly speaking, it is possible to use land for either commercial or residential purposes. The construction of houses for personal use or for the purpose of renting can be classified as using the property for residential purposes.
The construction of shops or office spaces falls within the commercial usage of land. Experienced real estate investors often approach the issue of land purchase from the angle of land use. What you intend to do with the land should determine the type of land that you buy and not vice versa.
Most state governments in the country have strict land use regulations. There are areas that are already zoned as commercial and there are those that are zoned as residential.
Some investors take the risk of buying the land that had been zoned for a particular purpose by the government and then apply for change of use.
This is not always the best approach since a refusal of your application by the government could mean a loss of opportunity or a limitation as to what you can develop on the land.
This is one of the reasons why you should purchase a land that fits into your investment purpose and you have confirmed will be approved for that purpose.
Alternatively, if you are not really sure and you will like to keep your options open, then purchase properties that are within the mixed development areas. A property that falls within these areas can be used for any purpose within the context of residential and commercial development. This also increases the value of such properties since the options for use are varied.
While individuals are looking for places to live in, companies are seeking for good locations from where they can run their businesses profitably.
When you examine emerging economies such as ours, you will observe that there are several individuals starting or growing businesses who need such facilities either at a micro or macro level. The need for shopping complexes, warehouses, stores, and other commercial facilities are numerous and will continue to increase.
In addition, entrepreneurs are often interested in leasing properties for a reasonable length of time that enables them to focus on their core business and grow it.
They are often willing to sign agreements to lease properties for three, five or more years at predetermined rates. This is good for both the tenant and the property owner. The tenant is assured of a secure business premises during the period while the owner is assured of a regular income during that same period.
One other benefit of having commercial tenants is that they usually pay more. It is a common trend that companies are charged higher rents on commercial premises than those charged on residential premises.
This higher cost means that more businesses prefer to have small spaces that they can easily afford. The implication is that several businesses share the same facility and the space accommodates more paying tenants. In a residential building or apartment, there is a limit to the number of tenants that are expected to occupy the facility.
Many real estate investors have also discovered that it is possible to recoup an investment in a commercial real estate faster than through a residential real estate.
An astute investor who gets the numbers right will reduce his waiting time before recouping his money by several years due to higher rents or income from such properties.
But if you look at it closely, the cost of building may not necessarily be higher. For instance, a person that owns an event centre and another investor that has a two-storey building; the event centre may be slightly cheaper to build and may give the owner a faster return on investment.
A commercial real estate investment has its own peculiar challenges as well. One of the obvious challenges that you could face is that it is easily affected by the state of the economy.
When the economy is on the upward swing, the value of such properties increases and they are generally in demand. But when there is a recession and several businesses close down, the vacancy rate for such buildings often increases as well. Depending on how severe the slow-down in the economy may be, it is possible to have commercial properties unoccupied for months or years.
In addition, the management of commercial properties requires a different and more professional management than that for residential properties. Some office or shopping complexes may need to engage a resident property manager to manage the common facilities and ensure that issues that arise between the tenants are promptly handled.
Often this will require additional costs that are referred to as ‘service charges’ which the tenants are generally interested in paying. This could also serve as an additional revenue stream for the property owner.
No comments:
Post a Comment