Should I Invest in Occupied or Vacant Commercial Real Estate?
October 30, 2023
Commercial real estate has always proven to be advantageous for investors but those looking for an opportunity often face a dilemma on whether to invest in an occupied property or a vacant commercial property. While the question is valid, several aspects need to be considered before you make a decision. You need to decide which type best suits your requirements.
In this article, we will take you through the pros and cons of both so that you have a better idea and can decide which one best fits your investment portfolio.
Pros & Cons of Investing in Occupied CRE
There are pros and cons of investing in an occupied commercial real estate. It already has tenants and is generating rental income but it has cons too. In this section, we go through these pros and cons in detail.
Pros of Investing in Occupied Commercial Real Estate
In this section, we’ll look at the advantages of investing in commercial real estate that already has tenants who are paying rent.
- Immediate Income The biggest benefit of investing in an occupied commercial property is that the property is already generating income for you. If you invest in it, you will start enjoying the rent paid by tenants immediately.
- No Need to Market the Property Since the property is already occupied, there is no need to spend time or money for advertisement or listing to fill the space.
- Filling Partial Vacancy is Easier Since the property is already occupied, it shows the value to other prospective tenants which makes it easier to lease out the same property to new tenants in the future.
Cons of Investing in Occupied Commercial Real Estate
Like everything else, there are cons to investing in an occupied property or buying an occupied property. We take a look at them below.
- Rent Cannot Dramatically Increase If you are investing in a property to generate a steady income, you must keep this drawback in mind. The current tenants will expect to pay the same rent or close to the same rent amount, and making a profit will take some time.
- You May Need to Honor Existing Contracts There could be inclusions or contract requirements that favor the tenant, and you might have to follow them. This could limit the chances of profitability.
- Effects of Past Relationship Status There have been cases where tenants have had a difficult relationship with the previous owner and this sentiment carries over. You may have to put in extra effort to rebuild the relationship from this level.
Pros & Cons of Investing in Unoccupied or Vacant CRE
Just like occupied commercial real estate, there are several pros and cons of investing in vacant or unoccupied CRE you must be aware of. In this section, we will go through all the details of the pros and cons.
Pros of Investing in Unoccupied / Vacant or Empty Commercial Real Estate
One big news is that you enjoy a few advantages to investing in a vacant commercial real estate property, and we will take a look at them in detail below.
- Free to Market as You Wish Since there are no tenants, you can market the property to any sector or industry you wish. There will be no limits, and you can ensure that you tap the markets that have the highest demand for commercial space.
- Ability to Increase Rates As there are no existing tenants, you are free to mark the rates as you wish and it will allow you to enjoy positive cash flow as well as profitability in no time.
- You Have No Existing Overhead or Responsibility Tenants do come with a baggage, and if you have an empty commercial real estate property, you do not have to worry about it at all.
Cons of Investing in Unoccupied / Vacant Commercial Real Estate
There are certain disadvantages of making CRE investments in vacant properties, and we will discuss them here.
- No Cash Flow Vacant or unoccupied means there is no rent being paid and you will not have cash flowing in as soon as you buy the property. You will have to look for new tenants so that you do not go without any income for too long.
- Vacancy Stigma It has been noticed that an unoccupied property can sometimes put off the illusion of the space not being good enough for prospective tenants. If it remains vacant for too long, there are concerns around the space, and it could become difficult for you to find tenants.
Investing in commercial real estate is a good idea but you need to carefully consider the pros and cons of both, investing in vacant properties and investing in occupied property before you make a decision.
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