What are the Costs Involved in Owning a Commercial Property

WHAT ARE THE

COSTS INVOLVED IN OWNING

A COMMERCIAL PROPERTY

Most of the time commercial property buyers consider it as a single expense that is the purchase price of the property.

However, if one truly analyzes the situation, commercial property ownership consists of several expenses.

Generally, people do not pay any heed to these costs involved in owning a commercial property and are surprised at the last moment.

Here are the expenses that arise when you buy a commercial property.

INTEREST PAID

Most of the commercial properties that are purchased today are bought using borrowed money by keeping some asset as a mortgage.

Whenever there is a mortgage there are mortgage payments and these mortgage payments also include an interest component.

Moreover, the schedule of payments is designed in such a way that banks collect all the interest first and then collect principal outstanding.

Thus, if these expenses are capitalized that is added to the value of your property, then the amount you pay for the property is significantly higher.

NOTIONAL INTEREST

Besides the interest paid, which is an out of pocket expense for the owners, there is also a notional interest involved in commercial properties investing.

Most of the real estate investments require the investor to put a down payment on the property and this payment is 10% to 15% of the cost of the property.

Experts opine that there is an opportunity cost in making this payment because if the money was not used for the down payment, then it would be earning interest in a bank.

Consequently, when it is used to make a down payment, it earns no interest.

PROPERTY TAXES

When you are buying real estate property, you agree to make continuous payments to the government every year.

These payments are known as property taxes and every government collects these taxes.

Therefore, these taxes contribute significantly to the cost of commercial property ownership and these costs are adjusted in value over time.

Furthermore, these costs rise with inflation at the same rate and while thinking to buy a commercial property, you must take all these costs into account.

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