Whether you’ve already had your eye on a local commercial real estate opportunity, or you’ve never thought you’d be the type of person who would purchase or own commercial real estate property, it could potentially be a good fit for you!
Keep reading to learn more about what kinds of commercial properties there are, the benefits and challenges of investing in different commercial property types, and ultimately, steps to take before purchasing a commercial property.
Commercial Property Types
Commercial real estate refers to property that generates a profit for the owner, and is often seen as an asset for diversification of portfolios or extra monthly income.
There are several different types of commercial property types, including retail buildings, warehouses, office buildings or parks, apartment or residential buildings, hotels, malls, industrial property, or mixed use buildings (for example, a building that has apartments at the top, but retail space on the ground floor).
The most common commercial properties include multi-family buildings, retail spaces and office spaces.
Office buildings are usually located in either suburban or urban spaces, with urban office buildings consisting of high-rises in cities, and suburban office building existing in smaller spaces, or within office parks. Office buildings are typically multi-tenanted or single-tenanted, and it’s important to know how many tenants may be occupying a space you are interested in buying or investing in.
Retail spaces can also be multi-tenanted, like a mall, or standalone buildings with one tenant. Buildings with single tenants are usually big corporate entities.
Multi-family buildings or residential real estate buildings include apartments, townhomes and condos. The size of the space you choose to invest in or buy will dictate how many individual tenants you could potentially have.
Depending on your role within the commercial property purchase or investment, it’s important to keep in mind how managing each of these property types will vary in responsibility.
Benefits of Owning Commercial Property
Unlike stocks, bonds and the cash hidden under your mattress, commercial real estate is a hard asset, gives you leverage, tax advantages, equity buildup, and a potential for high cash yield.
One huge benefit of owning commercial property is the idea that commercial property assets require leases, which means secure leases provide a regular stream of income that are usually higher than typical stock return. Tenants who always pay their rent on time are your new best friends.
Not only that, but commercial real estate investment usually lends itself to an increased appreciation in value, especially if you buy a building in an up-and-coming area. You can also increase the value of the property outside of the location by investing in proactive management, including cost-effective and eco-friendly improvements to utilities, adding desirable features (for example, adding a pool to an apartment complex might increase the amount you can charge for rent), and generally keeping everything in and around the property well-maintained. Your property will increase in value over time if you take care of it and invest in maintenance.
An additional benefit of owning commercial property is having an asset that can withstand the test of inflation, especially in countries that are printing more and more money to incentivize growth in the economy. Commercial real estate value will continue to rise when inflation occurs.
Challenges of Owning Commercial Property
When someone is looking to invest in commercial property, they’re using looking for an opportunity to make a return on their investment. However, that’s also what everyone else who is considering investing in commercial property is doing. A the buyer in this scenario, it may be difficult to find existing commercial property for the right price, and the right location, especially if you’re trying to buy property in a popular or busy area. If you’re looking to buy a place where you already live, keep in mind different areas and how popular your city is or could be in the next 6 months to a year.
Another challenge with owning commercial property is figuring out what the value of a property is, and if it’s fair. Commercial property in particular are difficult to compare due to a number of factors. You can look at square footage, but when it comes down to it, no two commercial properties will be the same. The best way to determine the value of a property is to look at how much potential profit exists there, such as length of leases, types of tenants, the condition the building is in, and the location of the property. For a beginner, it can be difficult to determine what property is the best value, and what will work with your life and budget. It’s best to consult a reputable and experienced realtor to help you figure out exactly what you want, and what’s out there that fits within those parameters.
Steps to Take Before Purchasing a Commercial Property
If you’ve never looked into purchasing commercial property before, here are a couple steps to take to help you get started:
- Figure out what you can afford
Most people who want to purchase commercial property will need some sort of financing assistance before they’re able to purchase a property. Take a look at the banks, mortgage companies and credit unions you could get a loan through. Compare interest rates, financing methods, and lease-to-own options that may be available to you.
- Visit the Properties
There will be most likely be lots of options, and it can get overwhelming scrolling through pages and pages of online listings. Pick a few that fall under the most important parameters on your list, including price, condition and location, and take a visit! The best way to gauge if a property is for you is to visit it and its surrounding area. A couple other things to consider when looking at properties includes what kind of income does each property generate a year, what parts of the property might need repaired or replaced soon, and why is the owner selling?
Thank you for reading our real estate and homeowner’s blog. We are Weichert Realtors – Barton Harris & Co. and we’re happy to have helped you learn more about if buying a commercial property is right for you.