Things to Know About Vacancy & Credit Loss in CRE Investing
Investing in the commercial real estate sector is always considered lucrative due to the handsome amount of returns on investments.
Moreover, the commercial real estate sector performed strongly among the various investment business on the comparison of the returns on investments.
However, the commercial real sector also contains many risks and you as an investor must be aware of them.
One risk that you must know about is the vacancy & credit loss which means that the amount of money or percentage of net operating income that you don't receive due to nonpayment of rents and vacant units.
Vacancy loss
The major goal of an investor when he purchases a commercial property is to keep it fully rented every day of every year.
However, practically it is not possible as no matter the amount of favorability of your property among the tenants, at some point in time they are going to leave the property.
The time gap between the moving out of the tenant and when the new tenants begin to pay rent is known as vacancy with lost rental income.
Moreover, there are a number of issues that decide how long your commercial property is going to stay vacant.
Most of the experts in the commercial real estate sector are of the opinion that longer leases help in protecting an investor against this risk.
One of the effective ways to diminish the vacancy losses is by continuously marketing your commercial property prior to the moving out of your tenant.
Credit loss in real estate
This is a very typical scenario where you have given your commercial property on rent but your tenant is not paying the rent.
Moreover, this is one of the worst situations to get into when you are investing in commercial properties because eviction of the tenant can take some time.
Moreover, there are certain laws that govern the eviction procedure and the timeline while most of the time people are honest and will pay their rent in full and on time.
While some people may have temporary issues in paying the rent, however, there are others who will use the law to occupy a home for months without paying rent.
The best way to avoid these kinds of sticky situations is to have meaningful credit checks and rental references as you have the right to protect your interest within the laws.
A proper tenant screening will help you in getting good & sincere tenants and you must also check their credit history before renting your commercial property.
Conclusion
Investing in the commercial real estate sector is fraught with many risks and the best way to avoid these risks is to seek help from the experts who can guide you with your investments.