Retail Properties or Multifamily Units – What’s a Better Commercial Property Investment?

February 4, 2020

Making any type of commercial property investment is a big decision. There’s risk involved, as well as great return potential when you get the right mix of market demand, value, and luck.

If you’re thinking about entering the commercial property market, the first major choice you’ll have to make is what type of property to buy. From industrial properties to office buildings and healthcare facilities, you can go into many different directions, and each type of property has its own unique benefits and risks.

Two of the most popular types of commercial property are multifamily apartment buildings and retail properties. With either multifamily or retail, you’ll see some of the greatest demand and the lowest risk, making them an attractive option for new commercial investors. Let’s take a look at the pros and cons of each to help you decide which type may be right for your investment goals.

The Pros and Cons of Investing in Retail

Retail properties are flexible, which gives you, as the property owner, a decent-sized pool of potential tenants. This is because a retail space can be used by different types of businesses, appealing to anyone from owners of clothing shops and pet supplies to bookstores. With other commercial buildings, you have less flexibility so your property will appeal to a smaller group of potential renters. For example, if you invest in a restaurant, you will only be able to rent to tenants in the food, beverage, and hospitality industry.

Another benefit of investing in retail is that your tenants are likely to pay their rent consistently. Small retail business owners tend to take pride in their business and will work hard to keep the premises clean. You’ll also be able to ask for a long-lease term so once you find a tenant, you can count on steady returns for two or three years, or longer.

On the other hand, with retail, you’re more vulnerable to a downturn in the local economy. If your retail tenant goes out of business, you’ll be left looking for a new tenant.

The Pros and Cons of Multifamily Properties

Another great option for commercial investors is apartment buildings and other multifamily properties. Where there are a modest number of business owners searching for commercial space at any point in time, there are always people looking for a place to live. Also, with multifamily properties, you will have multiple tenants. As a result, even when one unit is vacant while you search for new tenants, you may still earn an income from other tenants.

The downside of investing in apartments is that residential tenants are less likely to take excellent care of the property as they don’t have to impress their customers like a retail tenant does. Also, with multifamily units, you’ll have shorter leases – apartment leases usually have a six-month or 12-month term.

How to Find a Profitable Commercial Property

Whether you choose to invest in retail, multifamily, or something else entirely, it’s essential you know everything you can about a property, its history, and its potential. At The Yellowstone Group, we help investors make well-informed choices whether they want to invest in new development space, agriculture, retail properties, apartment buildings, or any other type of commercial space. Combining advanced technology with our years of professional experience, you can count on solid research and extensive market insights when you partner with us. Contact us to learn more.

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