Residential Property Only Includes Single-Family Homes or Those with Up to Four Units. Usually, Only Families or Individuals Lease Them. But Commercial Real Estate is Generally for Business Purposes, Including Five Or More Units.
You Can Break Commercial Real Estate into Five Main Categories:
- Multifamily: Essentially, Multifamily Homes Are Residential Properties with More Than One Unit, Like Duplexes, Garden Apartments or Assisted Living Facilities.
- Office Space: They’re Designated as Low-, Mid- or High-Rise Based on Size, And Allow for Multiple Tenants. Examples Include Medical Offices and Suburban Office Buildings.
- Retail: This Type of Real Estate Is Designated for Businesses That Sell Goods or Services to Consumers. They’re Usually Located in Places Conveniently Accessible, Like Regional Malls and Strip Shopping Centres.
- Industrial: These Properties Range in Size, Like Office Spaces, And They Host Industrial Operations, Such as Heavy Manufacturing or Light Assembly.
- Hospitality: This Covers Establishments That Service Travelers, Whether for Meals, Accommodations or Entertainment, Like Hotels and Short-Term Rentals.
Commercial Office Properties Face Further Classification and Are Broken into Three Class Gradings:
- Class A: Represents the Highest-Quality Buildings Available. They’re Typically Newer with Top-Tier Construction, Situated in The Best Location.
- Class B: Can Still Be High-Quality Properties, But Usually Older and Lower-Priced Compared to Class A. Many Investors Flip or Restore These.
- Class C: Are Generally Distressed and Older. Class C Properties Require Maintenance and Lack an Attractive Location.
Buying Commercial Property for Personal Use:
Investors Benefit from Real Estate in More Ways Than Just Financially. Others Purchase a Property for Personal Use. One Method Is the Owner-Occupied Commercial Real Estate Investment Strategy. In This, The Owner Uses the Property to Conduct Business Operations.
Happy Financial Group Affords You Tax Advantages, Like the Ability to Depreciate and Deduct Annual Interest on The Loan. In Addition, Owning the Property Allows You to Build Equity, Which You Can Sell for More Later. Or, You Can Continue Using the Property as An Income Stream Through Leasing. It’s Also Much Easier to Manage the Property On-Site and Control the Tenant Selection.
Buying Commercial Property for Investment Purposes
Buying A Commercial Building as An Investment Property Comes with Its Perks. According to Bank of America, Commercial Property Returns Range Between 6 – 12% Annually; That’s Higher Than the Average on Single-Family Residential Properties (Which Is Typically Around 1 – 4%). There Are Also Tax Advantages, Cash Flow Opportunities and Equity Appreciation When You Buy Your Commercial Property.
- Land Banking: The Process of Purchasing and Holding Land. Investors Do This to Protect and Grow Their Money, Since It Gets Tied to A Physical and Fixed Asset. They May Sell the Land or Develop It in The Future.
- Development: An Investor Buys Raw Land to Build On, Sometimes After Waiting for Its Value to Grow. The Direction of Development, Like Condominiums Versus Commercial, Depends on Zoning Laws.
- Fix and Flip: This Strategy Involves Buying Property, Renovating It and Then Reselling It for A Profit. Investors Usually Purchase Poorly Maintained Land at A Discount.
- Wholesaling: A Short-Term Real Estate Investing Strategy Where the Wholesaler Buys A Contract from A Property Seller, Typically Below Market Value. Then, The Wholesaler Sells or Assigns the Contract to An Interested Buyer.
- Passive Investing: This Strategy Is for Investors Who Don’t Want to Be Directly Involved. Instead, They Put Capital into a Real Estate Deal Through the Stock Market, Crowdfunding or Partnering with A More Active Investor.
- Attorney: A Professional Real Estate Attorney Saves You Time Closing on A Deal, Protects Your Interests During Negotiations, Helps You Understand Applicable Laws, Get Better Pricing and Ensure the Agreement Is Legitimate.
- Accountant: An Accountant Handles the Financial Side of Things, Preparing Budgets, Creating Monthly Reports and Generating Any Necessary Statements for Tax Purposes.
- Mortgage Broker: A Mortgage Broker Matches You with The Best Lender for Your Needs. They Can Submit Multiple Loan Applications, Increasing Your Approval Chances, And Track Down Agreeable Pricing.
- Contractor: These Professional Construction Workers or Companies Oversee the Site, Materials, And More During the Course of The Project. They May Also Come with A Team of Specialized Interior Designers.
- Property Manager: This Individual Supervises the Property and Ensures It Has Tenants Who Contribute to The Real Estate’s Value. Property Managers Also Facilitate or Address Repairs for On-Site Issues in The Building. Other Responsibilities Include Collecting Rent, Hiring Contractors and Meeting with Potential Clients.