Commercial Real Estate
Commercial real estate consists of many types of properties. Office buildings, retail spaces, hotels, recreational facilities, and residential housing with five or more units are types of commercial real estate. Investing in commercial properties can be quite expensive and oftentimes requires a group of investors to close a transaction. Commercial properties can add lucrative profits and a nice mix to real estate investors' portfolio.
Commercial real estate investing has the same purpose as other investments, which is to produce passive income. However, real estate investors new to commercial investing may be embarking on a territory with a language they do not understand. As with any type of investment, commercial real estate has its own language or lingo.
The key to commercial real estate investing is planning and research. First, investors must consider what type of commercial investment they want to purchase. Hotels, condominiums, and apartment complexes rely on the ability to draw in tenants and guests. Office buildings and retail spaces are commercial real estate opportunities that are all about location. Retail spaces need traffic and customers to thrive.
Understanding area zoning codes is very important when purchasing raw commercial real estate. Investors may find a great deal on a vacant building that would be perfect for apartments. However, if the area is not zoned for residential purposes the investor will be stuck with a building that cannot be used.
Commercial real estate is valued by the amount of revenue the building earns, along with potential future earnings. Unlike investing in single-family homes, residential commercial real estate does not depend on the rental of just one unit. Additionally, a multi-unit apartment complex is easier to maintain when all units are located under one roof.
For example, a single-family home purchased for $150,000 might bring in a monthly rent payment of $1500. This may leave the investor with only $200 to $300 a month after paying the mortgage, taxes, and other fees associated with the property.
In commercial real estate, the same investor purchases a $150,000 six-unit apartment complex. With all units rented, the building brings in a $3600 monthly return on the investment. After the mortgage payment, fees, and taxes, the investor might attain a $2,000 monthly return with commercial real estate investing.