Firstly, if you are a business guy and you are really into real estate or you want to start up a real estate as a business then you should consider going for a commercial real estate business because it is an estate set up for the business you want, commercial real estate allows you to lease out your property or real estate to people for business purposes while in return you get more income or been paid depending on the contract or agreement you signed with your partners.
Commercial property is real estate (buildings or land), it is also called commercial real estate, investment property or income property mainly to yield profit.
This profit come from either capital gains or rental income. Commercial property includes office buildings, medical centers, hotels, malls, retail stores, multifamily housing buildings, farm land, warehouses, etc.
Commercial buildings are buildings that are used for commercial purposes, and in addition to the examples, we have retail buildings e.g. convenience stores, ‘big box’ stores, and shopping malls.
However, in urban areas, a commercial building can integrate other functions, such as offices on levels 2-10, with retail another floor level.
Still on the same note, a residential property containing more than a number of units qualifies as commercial property for borrowing and tax purposes.
Local authorities commonly maintain strict regulations on commercial zoning, then a space allocated to multiple functions can be called multi-use.
The term Commercial Real Estate (CRE)
The absolute explanation is that Commercial real estate is property that is used completely for business-related purposes or to provide a workspace rather than as a living space.
Therefore, sometimes commercial real estate is leased out o tenants to conduct income-generating activities. They come in other categories, such as retailers of all kinds, office space, hotels & resorts, strip malls, restaurants, and healthcare facilities.
Types of commercial real estate
Let’s look into the basic categories of commercial real estate:
- Multifamily – This category involves apartment complexes or high-rise apartment buildings. But in real sense, it can be anything larger than a fourplex is known as a commercial real estate.
- Office buildings – This section can be categorized into single-tenant properties, small professional office buildings, and downtown skyscrapers.
- Retail/Restaurant – This category includes pad sites on highway frontages, single tenant retail buildings, small neighborhood shopping centers, larger centers, “power centers” with large anchor stores such as Best Buy, PetSmart, and OfficeMax.
- Land – They are investment properties currently undeveloped, raw, rural land in the path of future development or, infill land with an urban area, pad sites.
- Others- properties such as hotel, hospitality, medical, and self-storage developments etc.
How Commercial Real Estate Affects the Economy
Therefore, let’s look at the way real estate (commercial) helps to power the economy or its contribution to the economy.
As of 2018, commercial real estate construction contributed 3 percent to U.S. economic output. It totaled $543 billion, very close to the record high of $586.3 billion in 2008.
However, there is a sharp decline of 4.1 percent in 2008 to 2.6 percent of GDP. The low commercial has contributed was $376.3 billion in 2010.
What some people fail to understand is that? Commercial real estate construction simply takes longer than residential real estate construction.
The real deal is that it takes several months or years to build shopping centers, offices, and schools. It takes even more time to lease out the new buildings.
Aside from the income they realize or the money from investors, builders first need to make sure there are enough homes and shoppers to support new development.
Commercial real estate statistics follow residential trends by a year or two but they don’t show signs of a recession. They slowly hit their low well after residential real estate sharp decline.
However, this could mean that you can predict what will happen in commercial real estate by following the ups and downs of the housing market.
Categories of Commercial lease Estate
- A single-net lease makes the tenant responsible for paying property taxes.
- double-net (NN) lease makes the tenant responsible for paying property taxes and insurance.
- A triple-net (NNN) lease makes the tenant responsible for paying property taxes, insurance, and maintenance.
- Gross lease In this category, the tenant pays only rent, and the landlord pays for the building’s property taxes, insurance, and maintenance.
How to Invest in Commercial Real Estate
When we talk about investment in real estate, we must consider REIT. A Real Estate Investment Trust is a public company that develops and owns commercial real estate.
You can buy and sell shares of REITs, buying shares in a REIT is the easiest way for the individual investor to profit from commercial real estate. They distribute taxable earnings to investors, similar to stock investment, bonds, etc.
Most importantly, REITs helps you to reduce risk, save both time and money for you by allowing you to own property without taking out a mortgage since professionals manage the properties.
In addition to that, REITs share at least 90 percent of their taxable earnings to shareholders saving them the business tax cost, which is paid by the shareholder.
Pros and Cons of REITs
Commercial real estate values are a lagging indicator, REIT prices don’t rise and fall with the stock market. REITs share an advantage with bonds and dividend-producing stocks in that they provide a steady stream of income.
Value of your REIT reflects more than just the underlying real estate and also affected by the demand for REITs themselves. They compete with stocks and bonds for investors.
- Capital appreciation potential.
- High-yielding source of income.
- Stable cash flows from long-term tenants or investors.
- More capital required to directly invest.
- Greater regulation.
- Higher renovation costs.
Investing in Commercial Real Estate
Investing in commercial real estate can be lucrative and serve as a turn up against the volatility of the stock market. Investors can make money through property appreciation when they sell, but most returns come from tenant rents. let’s look at the direct and indirect investment.
People best suited for direct investment in commercial real estate are those who either have a good knowledge about the industry or who can employ firms who do.
Therefore, Investors can use direct investments where they become landlords through the ownership of the physical property.
In this category, investors may invest in the commercial market indirectly through the ownership of various market securities such as Real Estate Investment Trusts (REITs), exchange-traded funds (ETFs) that invest in commercial property-related stocks.
They can as well make indirect investment or by investing in companies that cater to the commercial real estate market, such as banks and realtors.
Report Commercial property for sale in the USA
Apartment building, New York, USA $16,790,000 4.0% $651,816 2018