Investing in Commercial Property

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When you are looking for a dependable way to build wealth, real estate is one of the best ways you can find. Real estate is a thriving industry that will continue to be successful for years to come. After all, we would always need land and buildings to live or for other activities. This is why property investing can never fizzle out. Real estate might be a booming industry but property investment and making money from it are not an easy feat. Real estate is broad and presents a lot of options including types of properties and investment strategies. One such type of property in real estate is commercial property. In this article, we will explore the commercial property and provide the solid information you need to become knowledgeable about this.

What is a commercial property?

Quite simply, commercial property refers to any property intended or already in use for commercial purposes. Commercial property or commercial real estate includes any building or land that will be used to make money or incur a profit. These include residential rental buildings and commercial buildings. The reason the commercial property is designated so is that the use of the property for commercial purposes influences its tax treatment and other laws that apply to it.

Types of commercial real estate?

Following the definition of commercial real estate, it may be easy to guess what the types of commercial properties are. But regardless, here are the types of commercial real estate.

  • Offices – An office is the most common type of commercial real estate, and such buildings can be in any structure from skyscrapers to single-tenant spaces. It is further categorized into three; Class A, Class B, Class C.

Class A buildings are the most prestigious or
high-valued on the real estate market. They are strategically placed in
prime locations and outfitted with the best amenities. Class A
buildings are often managed by property management companies of
equally high standards.

Class B comprises mostly older buildings. These
buildings have remained properly managed, needing only minor repairs at
any time. Class B buildings are never as high priced as Class A. They
are major targets for investors.

Class C, as you might already have predicted, is
the lowest group of them all. It includes buildings or property that are poorly
located, require a lot of money to redevelop, often vacant, and so on.

  • Retail – Retail
    buildings are a big part of commercial buildings. They are literally
    everywhere. These properties include malls, restaurants, banks, community
    centers, and so on. They range from single to multi-tenanted or stand-alone
  • Industrial properties – These type
    of commercial real estate refers to properties like warehouses, distribution
    centers, manufacturing spaces, research and development spaces, storage, and
    product assembly spaces. They are often located away from busy areas and mostly
    along transportation routes. Industrial properties are built to suit a specific
    need, which often makes them difficult to reuse or reoccupy without significant
    changes and investment.
  • Multifamily
    – This
    includes larger buildings or rather buildings with more than one unit. Examples
    are apartment complexes and high-rise condominium units.
  • Special purpose – These are
    properties owned by commercial property investors and used for special
    purposes like a church, school, amusement park, and more.

Benefits of commercial real estate

Commercial properties
or investment in this area offer impressive benefits. The most important
benefits are continuous cash flow and high income. Commercial real estate has
better ROI and the steady flow of income is due to long lease periods, lots of
available units, and most expenses like taxes, insurance, and maintenance
are covered by the tenants.

Another benefit is the
reduced competition. Investing in commercial properties are often thought to be
difficult and demanding. Hence, this sector is hardly saturated.  Also,
since some commercial properties are leased to companies or organizations, high
maintenance that helps to preserve the building is carried out by them. 

Risks of commercial real estate

As great as commercial
property investment sounds, it is not without its downsides and risks you must
be willing to take.

For starters, the
initial cost required to own and run a commercial property can be staggering.
Even when you do take this risk, and the business or investment takes off,
there is always that high possibility that anything can go wrong. For example,
a large bill can come up or roofing repairs or something else. You will be expected
to foot the bills and if your costs outweigh your profit, then you are making
losses and not profit.

You have to invest your time and consider hiring a property manager. You can’t be the landlord that doesn’t regularly oversee his property. Doing that can lead to problems with the maintenance of the property and the conduct of tenants.

You would also have to
consider hiring a property manager for a significant percentage.

Calculating ROI

The factors that affect
your calculations on ROI for a commercial property includes costs when you
become a landlord, insurance, maintenance costs, charging and letting agency
fees, and so on.

Knowing all this helps
you do the math. The ROI is the new rental income divided by the property’s

Tips for investing in commercial property

To avoid mistakes and
get your investment done properly, here are tips for investing in commercial
real estate:

  • Access the suitability of what you are going to do.

As a landlord, you quickly learn to prepare for those unexpected occurrences that may threaten your investment. To avoid the worst of them, always check with the town planning to be sure that there are no surprises waiting like a sudden notification about the ‘noise’ coming from your building.

  • Assess all the risks

Don’t walk in with unrealistic expectations. Find out
all you can about the risks involved. For example, what if a tenant does not
renew their contract? Or something else. Be properly informed to help you
tackle these issues as they come.

  • Protect your asset

Protection like insurance and a lawyer to consult with
are vital. What happens when the building is burned down or there is a lawsuit?

conclusion, commercial real estate has a lot to offer as long as you can deal
with the risks like many investors and property owners already do. 

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