What Are The Cons To Investing In Real Estate?

Despite the above benefits encouraging investing in retail estate, there are potential risks that you need to be aware of before making any commitments.

1. Commercial Real Estate Is Sensitive To Economic Conditions

When the economy is strong and “healthy”, real estate and retail business with flourish. This means that there is a great demand for commercial properties and the market value of retail spaces will rise. However, when there is an economic downturn, the demand for these types of premises will fall and a reverse in income will be experienced. Residential properties do not present with this degree of sensitivity to a company’s economic climate.

2. It Is More Difficult To Find Tenants

Finding tenants may seem like a simple task, but this is not the case for commercial real estate. While retail properties are able to attract long-term lease contracts, finding the tenant to commit to these contracts can be difficult. It is not uncommon for a piece of commercial real estate to have long vacancies where they stand empty. During this time you will be responsible for all the costs associated with the property, as well as any upkeep needed to maintain the structure.

3. Changes In Area Can Be Detrimental To The Property

While it is possible for changes in the surrounding area’s infrastructure to boost the value of a property and attract investment, it is also possible for changes to swing the other way. If the area becomes less desirable, the property could fall in value and may experience long vacancies due to the positioning of the property.

4. Value Can Drop Immediately

One needs to remember that the value of a commercial property relies not only on the area, but also on the lease of the property. When a commercial space becomes vacant, or if the lease is about to expire, the value of the building is likely to fall. In contrast, any price falls that are associated with residential properties are experienced over a period of time and are often less dramatic.

5. Vulnerability To Changes In Supply

Changes in supply conditions can be detrimental for potential property investors. Any increases in new real estate on the market in the same area will create threats for existing tenants looking to expand. Strong supply can also reduce potential yields, and this needs to be considered before committing to a commercial lease.