By investing in commercial properties, you can generate a sizeable cash flow every month. And who doesn’t want that, right? Typically, commercial real estate investors are paid better than real estate investors. In fact, the CRE investors are amongst the highest paid professionals. So, tell us.
Do you want to know more about what commercial real estate is? Are you thinking of becoming a commercial real estate investor? Do you want to make hundreds of thousands of dollars from one deal? If the answer to these questions is yes, then keep on reading. So, let’s begin with the essential explanation.
What is Commercial Real Estate?
Nowadays, commercial real estate may mean many things. However, in general, commercial properties are places where businesses are conducted or where many people live together. For example, office buildings, apartment complexes, hotels, shopping centers, etc. are commercial properties. Furthermore, these properties are expected to generate a profit – capital gain or rental income.
Moreover, often, investors lease the property to tenants to conduct business. Further, as the name suggests, commercial real estate is used in commerce. Generally, commercial real estates are Apartment Buildings, Offices or Warehouses, Retail Centers. Hotels and Resorts, Land. Also, when it comes to class categorization, commercial real estate is categorized into four classes.
Furthermore, individual spaces can also be categorized – into Class A, Class B, and Class C. Of course, Class A represents the best building. The criteria on which the buildings are classified are aesthetics, age, location, as well as the quality of the infrastructure.
Meanwhile, Class B is what most CRE investors look for. These properties are usually older. Also, they are not as competitive as Class A properties. Last but not least, Class B estates are generally older than 20 years old. Most often, the location is not attractive.
Commercial Lease Rate
Further, most investors buy commercial real estate and lease the property. By doing so, they collect rent, which is a stream of passive income. However, the rent price for a stated period, also called commercial lease rate is customarily quoted in annual rental dollars per square foot.
Currently, there are only four main types of commercial property leases, and they are:
- Single-net lease – the tenant is responsible for paying property taxes
- Double-net (NN) lease – the tenant is responsible for paying property taxes and insurance.
- Triple-net (NNN) lease – the tenant is responsible for paying property taxes, insurance, and maintenance.
- Gross lease – the tenant pays only rent. Meanwhile, the landlord pays for the building’s property taxes, insurance, and maintenance.
Things to Do Before Investing in Commercial Real Estate
As an investor, you probably want to risk-proof your investing, don’t you? Well, before you invest in a particular commercial real estate, there are a few things you need to do. For example, you have to do proper due diligence. In other words, you have to verify the financial documents of the property. Is the title of the property legal?
Moreover, you should always ask for the price per unit. Say you are buying apartments. Then you need to make sure you know the amount you are paying for each apartment. On the other hand, if you are buying a big building, make sure you are aware of the price per square foot.
Also, the funds for commercial real estate are usually higher than the funds for residential real estate. Further, while the residential real estate is mostly living spaces, commercial real estate is for business purposes only.
Furthermore, you should know the market. Study it. The more knowledge you have about the market, the better. Investing in commercial real estate requires many skills. So, make sure you keep your knowledge and experience up to date. Also, make sure you track the market as market conditions tend to change.
Advantages of Investing in Commercial Real Estate
- You have the opportunity to make much more significant amounts of money with CRE investing
- With commercial real estate investing, the amount of work is less
- Typically, the properties almost run themselves
- Moreover, you can establish multiple streams of income
- Also, with commercial real estate investing, you can build a longlasting wealth
- Typically, the value of properties increases every year
Disadvantages of Investing in Commercial Real Estate
- Commercial Real Estate investing is risky
- Also, it is challenging to begin
- Investors should have a lot of money
It’s great if you are thinking of becoming a commercial real estate investor. However, you have to get a good education before you jump into your first deal. Also, before you invest in commercial real estate, you should ask yourself why you are doing this? What is the purpose of this investment? Is this the right time? Is commercial real estate risky?
Furthermore, it might be a good idea to find someone who’s already investing to help you oversee your first deal. And once you feel comfortable enough to make money-making deals on commercial properties on your own, you will enjoy not only the reward but also the process of finding and negotiating profitable real estates.