but few want to rent commercial space. Since commercial leases are long-term, most tenants are locked into the space they rent, so the pool of potential tenants is small. Complicating this, the current demand for commercial property is among the weakest on record because so many people are working from home instead of going to the office. Many economists predict that some companies will permanently scale back their leased space in the future. Still, commercial property is a great invest- ment...until it isn’t. The cashflow is great until it stops. Although leases are long-term, when a tenant moves out it is not uncommon to wait a year or more before you find a tenant (it took me almost five years to find a new tenant for a commercial property). All the time it is vacant you are paying the mortgage, taxes, insurance, and maintenance. How’s that cashflow working for you now? Also be aware that commercial properties do not appreciate as well as residential properties. And, if the building is open to the public, the landlord needs to carry a significant amount of liability insurance. Plus, the maintenance costs are high— much higher than a single-family house or multi- family property. Currently, many people are afraid to invest in commercial property. Defaults on commercial property loans in the most recent quarter are 9.6 percent, a record level*. Many analysts believe there will be an oversupply of vacant commercial properties for years, especially retail and hotels. If you have a strong stomach for risk, buying com- mercial real estate could be the best investment you’ve ever made. You have to weigh the risks and potential rewards and decide if and when what Warren Buffet said applies to commercial proper- ty: “Widespread fear is your friend as an investor because it serves up bargain purchases.” •
Source: Mortgage Bankers Association “Mortgage Delinquency Rates for Major Investor Groups, Q2 2020”
W. J. Mencarow is a real estate investor (including farmland) with over 35 years of experience. He offers a free e-course on real estate note investing at www.Paper- SourceOnline.com
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