How to understand Commercial property in 3 easy steps

Have you ever heard other investors talk about commercial property, but were unsure about what they meant?

Its okay we have all been there.

One of the main problems about commercial property is its diversity. For example what is commercial property? What properties fall under its characterisation?

Simple.

Commercial property is commonly classed as containing a diverse group of structural types and uses. Yes we know, this doesn’t exactly help you narrow down on its meaning, but there’s more.

We can help you to break down commercial real estate into 3 distinct categories that will soon have you investing in the rental properties you want:

Multi-Family Commercial Real Estate

These consist of duplex homes* and other constructions built for habitation of multiple family groups, for example apartments, semi-detached, terraces…

*a duplex real estate property can fall under either residential, multi-family or commercial. In simple terms, a family may buy one and choose to rent out the other side. If a buyer does choose to do this it will be recognised as a residential unit. Alternatively, an investor may buy want to one and rent out both of these units. This changes its category and makes it a commercial property.

Retail Space Real Estate Properties

Or you may call them shops. These are single buildings used to house clothes, electrical or consumer stores. These can also be found on a much larger scale, for example shopping centres and restaurants can fall under this characterisation.

When opting to invest in a retail real estate property. Valuations are either be based on size and land value, retail sales per square foot or on the possible investment return you can generate from your rental property.

Of all these commercial types, these are probably one of the hardest commercial properties to invest in. They are prone to – depending on the location you are investing in – to sitting empty with no tenants for months on end, and for not generating a consistent monthly cash flow.

So if you want to invest in retail properties, only invest if you are confident that you can make a profit from them.

Office buildings and Office Complexes

Is exactly what the title describes them as: they are a single building designed solely for office use. You can expand upon this property investment though by either turning one office building into a group of offices or by buying the surrounding buildings (of the same structural type) and turning them into a cluster of offices.

A few things to remember though when you invest in an office building is that if the offices are grouped under a single ownership they will be listed as commercial office rental properties.

This will enable you to rent out your property investments, and earn a positive cash flow every month, whilst letting your tenants pay for the mortgage. You will have to pay nothing.

Plus if you do choose to rent out your offices, they can be valued based on your rental return on the property rather than per square foot or its land value.
And that’s it.

Commercial property doesn’t have to feel like an obstacle. By applying these 3 simple terms to your investments you will know exactly where you stand when you come to invest, plus will be able to pick out the right deals for you.

Perfect.

So get investing, and let commercial property open your investment horizons.

Frank Woodford is a highly experienced copywriter liaising with a successful property investment company who provide property investment workshop