It is common knowledge that acquiring real estate is one of the best investments you can make since it is one of the few assets that increase in value over time.
Few investments are as safe as buying land. In general, lots for residential purposes are better known. However, a piece of land in a commercial area provides additional benefits that we will talk about in this article prepared by Sky Marketing.
But before we begin, we must define what a commercial zone is and how it differs from a residential zone.
What is a Commercial Area?
We can define a commercial area as the extension of land that is located in urbanized areas and whose purpose is to establish commercial businesses and promote the local economy. An example of this is the small shopping malls that group a certain number of businesses such as laundries, restaurants, convenience stores, and stationery stores, among others.
It can also be a shopping center where there is a greater number of businesses, in addition to activities for recreational purposes.
Commercial zones are not something recent since this concept arrived in Latin America during the 20th century. Its origin goes back a few centuries in the rural communities of Ireland, spreading during the following years to the rest of the world. The creation of commercial zones had its origin in need to generate jobs and boost trade. In this way, they evolved to what we know today.
Benefits of Land in Commercial Areas
Currently , large investors opt for the purchase of commercial land, as they generate higher profits than residential land. In recent years, Pakistan has been in the sights of foreign businessmen looking for investment land that will bring them safe profits in the medium and long term. This is due to the fact that as of 2018, an increase in investments in the real estate sector was observed, generating excellent opportunities to acquire land at a good price, in addition to the fact that the advantages of investing in the land even in times of crisis are still valid.
Based on this, we mention the main benefits of buying land in a commercial area:
1. Accessible Investment
Acquiring land is more accessible than buying a residence, and in most cases, it is not necessary to resort to a mortgage loan. You can acquire commercial lots at a very good price and in comfortable monthly installments, ranging from 12 to 36 months, even more, if the case arises.
If you have capital, allocating it to commercial land is the best option. In this way, instead of spending your money, you will be saving while acquiring assets that will make your initial investment grow with little effort.
2. Return on Investment
When you acquire land for commercial purposes, the return on investment rises considerably. Not only because it is cheaper to buy land, but being in a commercial area increases its value, unlike residential ones. The return on investment is calculated based on the purchase conditions, the flow of money and the capital gain obtained. This information is what gives you the certainty that your purchase was a good investment.
In summary, it ensures the profitability of your investment in the medium or long term, both in terms of ROI (Return on Investment) and ROE (Return on Equity), since the average growth rate of the investment rate in a piece of land is between one 12% and 20% annually.
In order for the value of your land to increase, it must meet certain conditions. For example:
- Location in an urbanized area
- Commercial and pedestrian flow
- The surrounding population and its purchasing power
- Price of nearby properties
- Maintenance and use provided
- Time and quality of materials (in case of construction)
The price and value of the property are different concepts; the value that the land can reach is the one that will allow you to obtain the return on investment.
3. Stability and Security
As we mentioned, buying real estate is one of the safest investments you can make. In addition to protecting your finances and your future, it will guarantee you a constant source of income if you want to rent it.
Having an estate on land not only gives you the peace of mind that your money is safe, but it grows with each passing year. Investing in real estate will give you the opportunity to build a network of properties, which can serve as collateral for other businesses or for retirement.
4. Price and Additional Costs
As we mentioned, it is clear that it is much more affordable to buy land than properties with construction. And not only that, the additional expenses are lower and most of them can be purchased in monthly installments.
There are good opportunities to buy at competitive prices and it is even better when it comes to a pre-sale of land since the savings are greater, which is reflected in the increase in profits in the future.
If you decide not to build, the expenses are almost nil. For example, the property tax is much lower compared to that of a property with construction. As for maintenance costs, you will not have to worry since the wear and tear of the land is non-existent.
5. It is Ideal for Any Type of Investor
The real estate market is friendly, which allows all types of investors to acquire land for business even without being very steeped in real estate. Commercial lots are ideal for first-time investor who wants to start their own business, for a small business owner who wants to expand and even for large investors who want to expand their network of properties.
In addition to the above, acquiring a commercial lot prevents the emotional attachment from being generated, and it is important to point this out because the attachment that sometimes arises towards properties can cause accurate and convenient deals not to be closed in the future for you.
6. Varieties of Use
One thing that stops first-time investors is wondering what business to do on a vacant lot. To answer this, the main advantage of land in a commercial area is its variety of uses.
How is this? Depending on the type of commercial area, you can put a wide variety of businesses ranging from hairdressers to convenience stores and even for residential use, for example, a set of apartments for rent.
The advantages of this are many since you have a free hand to choose the type of business you want to start, or on the contrary, leave the land as it is to resell when necessary, which we will talk about later. Another advantage is that you can know the type of business that the other lands will have as they are acquired, and in this way, avoid repeating them.
7. Extra Rental Income
You can generate immediate profits with your land by leasing it, either through traditional means or even renting it to franchises.
Acquiring land in a commercial area gives you several business opportunities, for example:
- Lease the Land: If you have no plans to sell it in the short term or build on it, this is an excellent option. A large number of companies and businesses are always looking for a well-located space to expand, which is beneficial for you since you will not have to invest in construction and the land will be generating constant income while increasing its value over time. Even if you decide to sell it at some point, the company that is leasing it might be interested in buying
- Build on the Land: Another option is to build one or more premises, even make a small commercial plaza with which higher income would be generated with the rental costs. However, this implies a greater investment, extra effort and additional expenses such as taxes and maintenance.
In addition, if you take into account that land is a finite product —that is, it cannot be produced more than what already exists— the demand for land with a privileged location in urbanized areas will increase, and with it, the opportunity to close a good deal.
8. Possibility of Selling at a Good Price
If your land meets the requirements to generate capital gains, you can obtain an attractive profit in the medium or long term since the value of the land increases as the area develops and grows.
The benefit of this is that in terms of land, competition is low since most are focused on buying homes and are unaware of the advantages of land.
What should you Take into Account when Buying Commercial Land?
Now that you know the advantages of commercial lots, we can mention that an additional one is the ease with which you can close the sale. However, we will tell you about the main factors that you must take into account so that your investment is safe.
- Research the reputation of the real estate company that is making the sale. It seems logical, but sometimes it is easy to get carried away by promotions or prices, and although it is important, you must make sure that the seller is trustworthy and has experience in the field
- Check the location of the land. Most don’t have pictures of land because there isn’t much to show. However, making sure the location is compliant is vitally important. Check that the flow of people is constant and its proximity to inhabited areas
- Check the legal status of the land in the Public Registry of Property (RPP) to make sure that everything is in order
- Confirm the commercial permits — for land use — and the type of business you can open in the area. For example, a business dedicated to the sale of liquor would not be appropriate if there is a school nearby
- Keep up to date with the payment of taxes that corresponds to each party involved in the sale to have an accurate budget
Differences between Commercial Land and Residential Land
When it comes to buying land, such as NMC , you may wonder what is better, whether to buy a house or commercial land. Among the main differences that exist between them —and that will help you make a decision— are:
A property for housing can hardly be used for business, especially in residential areas where it is not allowed. Commercial land can be residential or mixed-use, which gives you an advantage over what you can build and how you want to use it.
2. Business Opportunity
Homes have a higher level of competition and a higher level of effort is required to make a profit. In the case of commercial lots, as we mentioned, the competition is much less, which makes buying and selling more accessible.
3. Maintenance Expenses
A property generates constant expenses due to the wear and tear of the property, either by use or by the passage of time. On the other hand, wear and tear on land is non-existent, so maintenance costs are almost nil.
4. Acquisition Cost
A property intended for housing is definitely more expensive, and usually, the payment has to be made in a single installment unless the purchase is made through a mortgage loan. Commercial land is more accessible and does not require a bank loan since they have their own financing in much shorter periods of time.
If you are thinking of investing in a commercial lot, consider doing it in Blue World City and approach the experts. We are Sky Marketing, and we will answer all your questions regarding real estate. Contact us.
Author: M. Rubayet