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Commercial Property? How to invest in Commercial Real Estate Property and its Pro’s and Con’s.

Commercial Property or Commercial Real Estate refers to buildings or land intended to generate a profit. Commercial real estate is considered a more stable investment than other types of real estate due to the lease lengths, which are often several years or more. Commercial real estate is different than working with residential real estate which is classified by its use into many categories. Residential real estate deals with single family homes, duplexes and small apartments. But commercial real estate will be dealing with office buildings, retail stores, warehouses, and more. 

Types of Commercial Real Estate

  • OFFICES AND INDUSTRIES

Classification - Office buildings are usually loosely grouped into 3 categories: Class A, Class B, or Class C. 

Class A buildings are considered the best of the best in terms of construction and location. Class B properties might have high quality construction, but with a less desirable location. Class C is basically everything other than the above two types.

  • RETAIL CENTERS

  • HOTELS AND RESORTS

  • LAND DEVELOPMENT

 

Investing in Commercial Property Real Estate:

There are two main ways to invest in commercial real estate

The first is to invest for rental purposes. Commercial real estate leases are longer in length, meaning they are more stable investments for unstable markets. Your investment should be fairly safe if your lease term is not up yet when the market takes a dip. Investing for rental income is often the more lucrative path in commercial real estate, especially if you have a Class A or Class B building. 

Another way to invest in commercial real estate is to invest in property appreciation. Because the businesses who rent out commercial buildings mainly rely on location to make a better profit, and because real estate in prime areas is limited—the value of commercial buildings appreciate rather rapidly. This is especially true if you get into a lucrative location before it gains popularity. Investors looking to use the appreciation as their investment should know that the market for this type of investment is a bit riskier than the rental market.

 

The Pros and Cons of Commercial Property Investment:-

PROS

Flexible financing – When it comes to the commercial real estate, you get several flexible financing options. In fact, you can even buy huge commercial properties without actually using any of your own money.

Leases tend to be longer – three, five or ten year leases are quite common in commercial property. Ideally, this means the owner won’t have to deal with the costs associated with bringing in new tenants so frequently.

Peace of mind – With an on-site maintenance, it gets peaceful for the owner as well. If it is an office building, you only have one tenant to deal with during business hours, and there may be limited maintenance calls during off hours. Commercial properties often come with a lease agreement where the tenant is mostly responsible for the maintenance of all the assets, or any ongoing property expenses, including taxes, along with paying the rent and utilities.

 

CONS:

Time commitment. If you are the owner of a commercial retail building that has multiple tenants and subtenants and you have got a lot more to care for than you would have had for a residential investment. You cannot be an absentee property-owner and get the most out of the return on your investment when you have multiple occupants.   

Maintenance Cost. With commercial, you’re likely to deal with yearly CAM adjustments, (Common Area Maintenance costs, which tenants are in charge of) public safety concerns and more maintenance problems.

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