Commercial real estate is pricier than residential, but it is desirable to investors because it’s considered a stable investment. Before getting into investing, it’s essential to learn the basics, including commercial real estate definitions, the differences between commercial, residential, and industrial real estate, and what you need to do before investing in commercial real estate.
What is Commercial Real Estate?
The term “commercial real estate” is used for a property or structure with a commercial purpose, including office buildings, hospitals, retail space, and land. “Residential real estate” refers to dwellings used for living; “industrial” buildings include manufacturing facilities. Some multi-use commercial buildings have a dual-use, like a restaurant in an office building. Classes of commercial properties range from A to C. Class A denotes a prime location, quality building materials, and professional staff maintenance. Class B indicates the building is older and outdated, making it more affordable and sought out by investors. Class C properties are 20 years old or more, situated in shabbier parts of town, in need of repair. The cost of repairs often outweighs the property value due to an undesirable location.
Investors may feel more confident about their investment if they have a lease in place because commercial leases are typically ten years or more. So, if the market drops, the investment is reasonably secure for the duration of the lease.
Commercial Property Appreciation: Commercial property in prime areas is often limited, so the value appreciates quickly, especially if you find a commercial building in a lucrative location before it becomes wildly popular. The market for this type of investment can be riskier, but it can also be very profitable.
The Buying Process: Commercial buying processes are usually more complicated than residential because they involve multiple partners and may require the guidance of a real estate agent that specializes in finding deals for commercial investors.
Selling Commercial Real Estate: If you decide to sell, you may wish to hire an expert real estate brokerage firm. The benefit of paying for this service is they often have investors on hand looking for properties to buy.
Before You Start Investing
Secure Capital: You will want to secure as much capital as possible before looking at commercial properties. You can decide to go it alone, work with fellow investors, or consider a real estate investment trust (REIT) which allows investors to invest without having a lot of knowledge of real estate assets. Investors pool their money and end up investing in high-rise office towers and shopping malls or be involved in a portfolio of billion-dollar commercial property portfolios with just a few hundred dollars to start.
Research: Know your goals for investing and base your property research around those goals. If your plan is renting, find the average in the area and look at its track record. Is it holding steady, or is it on a slow incline? Also, consider the economy of the location in general.
Be Smart with Your Investment
If you have found commercial real estate where you would like to invest, access doors need to be on your list of upgrades. Installing access doors, roof hatches, and floor panels will allow you to hide unsightly pipes and wires and conceal HVAC components, keeping them safe from unauthorized tampering while providing easy access for your maintenance personnel.