When you say commercial real estate, it is a property that is leased to businesses and for retail purposes. If you plan to participate in commercial real estate investing, then you first need to understand that there are five different types of commercial properties.
The office is the most common type of commercial real estate. They can either be single-tenant offices or skyscrapers. This type of property is further divided into three categories, which are Class A, Class B, and Class C. Class A properties are those that are usually newly-built or those that have undergone various renovations. They are located in convenient locations with easy access to various amenities. On the other hand, Class B properties are older buildings that require some minor repairs and upgrades. It is the type of property that is a favorite amongst investors. Lastly, Class C are properties that are in poor locations and will require major improvements. They are usually ideal for redevelopment opportunities.
When you think about commercial establishments, retail stores come to mind. These are properties that include malls, restaurants to community banks, among others. Their locations are usually in urban areas where there are more foot traffic and potential customers.
There are many kinds of industrial properties, such as warehouses, manufacturing facilities or flex spaces. These are properties that deal more with the manufacturing industry. They are properties with features such as height specifications or docking availability.
These are properties that include apartment buildings like the Orlando apartments, condominium units and others. It is considered as a multifamily real estate if it contains more than one unit. It can also be considered as a commercial property if it has more than four units. This is a property that most residential investors shift towards.
These are the properties designed for a certain use. That is why it is often hard to repurpose the property for another use. Examples of it are schools, hospitals, or amusement parks and airports, among other things.
How do these types of Commercial Real Estate earn a profit?
Commercial real estate investing is a convenient way to earn a profit. Using your commercial property, you can make money in two different ways: through leases and appreciation.
- When you lease your property, you obtain rental income. This is the profit you get from your tenants, which will become your continuous cash flow or revenue. Various factors can influence your generated returns, and these are your operational costs and debt services.
An important thing to also remember is that for you to get more rental income, there must be a balance between vacancy and occupancy. This means that each unoccupied space is considered as a loss for you. A highly occupied rental property is the ideal situation because it will give you steady cash flow and returns.
- Throughout your ownership, the value of the rental property will continue to rise, and this is called appreciation. All real estate properties are considered to have potential increases in asset value. And with the scarcity of raw land, more and more people are willing to be tenants even if they have to pay higher rents.
Commercial real estate is a booming investment. You won’t regret having purchased your property because of the many advantages it brings.