If you’ve ever thought about venturing into commercial real estate for your next investment, here are some basics to help jump-start your research.
What is commercial real estate?
Commercial real estate is any property used solely for business purposes. Office buildings, retail space, hotel/ lodging, and warehouses are common examples. Industrial property, which is used for manufacturing and production, is also considered commercial property – as are specialized properties, such as senior living centers, self-storage facilities, and healthcare centers.
Multi-family properties and raw/undeveloped land can also fall under commercial real estate.
Why do investors consider commercial real estate?
Commercial real estate encompasses a wide variety of structures – each with their own inherent risks and rewards.
From Entrepreneur, some differences of investing in commercial real estate:
“Commercial real estate is valued differently. The income that a piece of commercial real estate produces is directly related to its usable square footage. This isn't always the case with residential.
Commercial property helps diversify risk. For example, if you own an apartment building and you lose one of your 10 tenants, you only lose one-tenth of the income for that property, instead of the entire rent as you would if you lost a tenant in a single-family house.
Cash flow is often greater with commercial real estate. The yield is often higher per square foot and on an initial investment basis than it is in residential. If you lease or rent a multi-unit commercial property, you have more tenants to generate income than you do with a single-family dwelling.
Commercial real estate leases are generally much longer. This helps with the stability of your cash flow.”
What are some starting points?
Conducting research and performing due diligence are essential when exploring any investment opportunity. Seeking the guidance of qualified, third party professionals may be in your best interest when evaluating a commercial property for its investment potential.
From Inc’s guide to purchasing commercial real estate:
“…surround yourself with the right team of experts. They can help you determine the right time to buy or sell, the right locations to consider, and the nuts and bolts of closing the deal. Here are some of the experts you may consider contacting:
• Accountant. An accountant can help you figure out what your business can afford and analyze the tax and operating budget benefits.
• Lawyer. A lawyer can help you complete the transaction, negotiating with the seller and lender on your behalf.
• Commercial broker. A real estate broker can help you identify potential properties and what you can afford.”
You can also review Equity Trust’s Commercial Real Estate Quickstart Guide. Download for free here.
Remember, myEQUITY hosts Ask the Expert Q&A sessions to educate on a wide variety of investment topics. Grow your knowledge and join in the conversation. Prior experts answering questions on real estate include Dyches Boddiford, John Hyre, and Mark Podolsky.