What Type of Commercial Property Has the Best Returns?

Commercial real estate is broken down into four major categories:

  1. Office
  2. Retail
  3. Multi-family
  4. Industrial

But within these four major categories there is a lot of variety. For instance, a retail space could be a small strip mall, a single building, or a full-sized mall. A multi-family property can range from a building that contains four apartments or 100 apartments to a mobile home park.

When it comes to deciding which type of commercial property will have the best returns there are a lot of factors to consider, including how much direct involvement you want with the property, its tenants and how much vacancies will impact your rate of return.

When you’re dealing with office, retail, and industrial properties, you are dealing with business owners who will many times be responsible for the costs in their particular unit from remodeling to maintenance. But depending on the size, one or two vacancies could create a loss for you, the owner.

Multi-family dwellings, especially those with a high occupancy capacity can get a better return. Five vacancies in a 50 unit building would only be a 10% vacancy, while one vacancy in an industrial building with only one tenant would leave you with a 100% vacancy. But multi-family properties generally require more hands-on attention as you coordinate maintenance requests, collecting rent, and managing leases.

A commercial property with one of the best rates of return would be a mobile home park. Depending on the type of park, many tenants own their own home and are simply renting the space from you, meaning that your responsibility would mostly encompass keeping the grounds clean and performing light maintenance.

The best way to determine which type of commercial property will have the best rate of return is to decide which will fit your lifestyle and investment goals.

Mathew Laborde, CCIM
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