Getting Started with Commercial Real Estate - Part 1

Investing in commercial real estate can be a rewarding endeavor, both personally and financially. It is a great way to build wealth and has been known to provide some of the highest income streams; that is, if you don’t slack on your due diligence. If you’ve ever wondered how to get started with this multifaceted real estate investment, we’re going to break it all down by starting with basics - what is commercial real estate - and what are the benefits of investing.

What is “Commercial Real Estate?”

Let’s start with the basics. Commercial real estate is property that is typically leased to businesses with the intent of making a profit and generally categorized into the following types:

Retail

Retail property is space leased to businesses that market and sell goods and services to a variety of consumers through a storefront. Retail properties fall into categories such as malls, neighborhood shopping centers, commercial strip properties and single building properties. These properties are often highly visible with long term leases making them an attractive option for investing. 

Multi-family

Multifamily properties are 2 or more residential dwellings contained in the same building or group of buildings. These buildings are typically apartment complexes, condominium units or smaller multifamily units such as duplexes or fourplexes.

Office

Office buildings contain spaces that are leased to companies who use it to operate their business. Office leases can be divided by either the building, floor, parts of floors or office parks.

Industrial

As the name suggests, industrial properties often serve an “industrial” purpose such as manufacturing, production, distribution, logistics or warehouse operations. 

Land

Though all commercial properties come with land, a vacant piece of land with no building on top of it is an asset in its own class.

Mixed Use

Mixed-use properties include two or more of the property types listed above. For example, a multi-family apartment building above a retail shopping center, something very common in bigger, urban cities.

Special-Purpose

These commercial properties are designed for a specific use that doesn’t fit into the categories described above. These properties are often represented by industries such as leisure and tourism for uses of sports stadiums, amusement parks, hotels, airports as well as businesses like self-storage or car washes.

The Benefits of Investing in Commercial Real Estate

There are a variety of commercial property types to evaluate and consider when it comes time to investing in commercial real estate but more importantly, there are some key benefits to take advantage of with that investment.

Potential for higher returns

Commercial real estate investments typically provide higher returns than residential real estate investments. Rental and lease agreements typically have longer terms and lower maintenance costs, leading to steady cash flow and greater potential for appreciation.

Diversification of investment portfolio

Investing in commercial real estate allows for diversification of your investment portfolio and reduces the risk of over-reliance on any one type of investment.

Tax benefits

Commercial real estate investment offers many tax advantages including depreciation deduction mortgage interest deductions and property tax deductions

Professional Property Management

Commercial real estate properties typically require professional property management services which mean that they are easier to manage compared to residential properties.

Stable income

Many commercial real estate investments provide stable, longer term income streams which can offset the volatility and unpredictability of stock market investment. Additionally, rising rental rates and low vacancy rates are common in commercial real estate, providing a stable and reliable source of income.

Feeling intrigued by the potential that commercial investing might have to offer? We’ll let all that information sink in for now because next month, we’re covering how to get started and the mistakes to avoid. Stay tuned!

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