From The Desk of Steven Kealey, BA, MSc, Broker of Record:
Here's a snapshot of the total number of multi-unit office buildings, retail plazas and industrial buildings that are currently available for sale now within Hamilton, St. Catharines, Niagara Falls, Welland and Port Colborne (the five largest cities in our market area):
Although multi-unit commercial income properties typically require larger down payments (usually a minimum of 35% of the purchase price), they can offer offer considerable advantages to certain investors over purely residential multi-family income properties:
1) Higher Income Potential -- Multi-unit commercial income real estate has a higher income per square foot than residential multi-family investment properties, and therefore offers a higher income potential for the investor.
2) Less Tenant Turnover -- Unlike residential income properties where apartment tenants turn over (vacate) in less than five years on average in most areas, commercial tenants (in office, retail and industrial space) tend to stay for longer periods of time... which can mean less turnover cost (in time, management and upgrades required) to the commercial Landlord.
3) More Predictable Net Income Streams -- As commercial tenancies are often arranged on a "triple net" basis where the tenant pays for their share of utility expenses, property taxes and insurance, and the maintenance costs of the building (on a pro-rata basis), the commercial Landlord does not have as many expense items to pay for... which leads to more consistent & predictable operating expenses for the commercial Landlord. As commercial tenants are responsible for the vast majority of maitenance and repair costs within their units, there is also less management time required to coordinate repairs and maintenance for multi-unit commercial income properties.
4) Less Management Time Required -- Because commercial tenants tend to stay longer (resulting in less tenant turnover) and tend to be more responsible for repair and maintenance and upgrade issues, there is simply less management time required to manage commercial multi-unit investment properties as compared to residential income properties. Less time is also required to manage commercial tenants simply because commercial tenants (business owners) tend to be a higher quality of tenant (less likely to pay their rent late, less likely to become delinquent in their rent payments, and generally less likely to cause trouble for the Landlord).
5) Less Competition From Other Real Estate Buyers -- Another point in favor of investing in commercial multi-unit properties is that there is less competition from other investors. This is because most investors are not comfortable buying larger office buildings, retail strip centers, or industrial complexes. These types of commercial real estate investments are out of most peoples' comfort zone. As there are many more buyers competing to buy apartment buildings in most markets, the lower demand for good commercial properties typically leads to better buying opportunities and better capitalisation rates for Commercial Income Property Buyers.
However, there are some valid reasons why many investors find that commercial mult-unit income properties are "out of their comfort zone". For example, some disadvantages of commercial income properties are as follows:
-- Higher aquisition costs
-- Higher vacancy during recessions or slow economic times
-- More volatile income stream due to swings in economic cycles
-- Longer time frames required to find new tenants
-- Higher costs for releasing due to longer time frames to lease up and more improvements often required upon re-leasing
Because of the above disadvantages, most investors find that multi-family (residential) income properties make more stable investments. However, for those investors willing to take on the higher risks that come with commercial real estate... larger rewards can be found with these types of office, retail and industrial income properties (especially during good economic times).
To gain access to our many years of local in-depth experience & expert analysis of multi-unit commercial properties for sale (68 are now available) in Hamilton, St. Catharines, Niagara Falls, Welland, Port Colborne and the surrounding Niagara Region (including access to some "Exclusive" & "Off Market" opportunities... and urgent UPDATES of new listings available for sale), please complete the form below: