We have all at some point considered commercial real estate investment property partly due to the successes of other investors. 2019 is shaping up to be an excellent year for real estate investors as a result of surging increase in rental prices and commercial real estate properties are not exempted.
Investing in commercial real estate is different from residential real estate, before venturing into it always prepare yourself before you jump ship. We will go into detail about everything that you need to know to be ready for what’s to come.
Types of commercial investment properties
There are various types of commercial property investments; they all have different characteristics based on kind of construction, location, purpose, and size. Types of CRE properties include:
- Office Buildings- This type of properties allows you to invest in a high-rise office building, small office building or multi-building office park. Contracts of this properties stipulate that tenants pay a fixed rent and are responsible for maintenance and repairs, insurance and real estate taxes.
- Retail/Restaurant- As a commercial real estate investor you can solely focus on commercial businesses such as grocery stores, regional malls, drug stores to mention a few.
- Industrial Properties- This is s large customized properties for specialized use such as manufacturing facilities and warehouse
- Multifamily Housing- They are apartment complex comprising of 100 of units, this type is prevalent amongst CRE investors
- Land Investments- They include land being re-purposed, farmland or vacant land that you can invest in
- Miscellaneous- It comprises of many types of CRE properties such as gas stations, ice cream stands, ice skating rinks the list is endless.
Classification for the commercial office building
This classification assists investors, tenants, landlords, and brokers in identifying and making a comparison of various commercial office buildings.
- Class A: They are the newest and modern spaces entering the market complete with state-of-the-art tech and world-class amenities. They are also mostly located in central business locations.
- Class B: It comprises of beautiful and functional office spaces that were previously class A buildings, they have a favorable price but are slightly outdated.
- Class C: Think of old, rough but usable spaces; they have no amenities.
Advantages of investing in commercial property
- It has longer Lease contracts stabilizing cash flows
- There is less competition
- Tenants improve and take care of your property increasing property value
- Commercial investment properties have the potential for greater cash flow and reduced risks
- Investors can reap more than 100% of the initial investment; no other financial product offers this
Drawbacks to Commercial Real Estate Investing
- Its costly and will take up a lot of money
- There are so many rules and regulations
- Require professional help for maintenance issues
- There's a greater chance of legal problems
Purchasing commercial property
When it comes to investing always treat it like a business
- Create a business plan
- Outline your financial commitment that you are willing to make and what you hope to reap from the property financially
- Analyze the location using data and statistics
- Employ services of attorneys and accountants to ensure your contract is airtight and is structured beneficially.
To get a loan, you will have to visit banks or financiers that deal with commercial properties. Ensure you are aware of costs included in your loan.
Financiers charge administrative fees and VAT, know the exact sum and inquire if it will be included in the loan amount or whether it's payable separately. Remember to always factor in legal fees associated with your loan.