What is Commercial Real Estate Investing?
There are a lot of questions when it comes to investing buying or even selling real estate. So we made it our job to help you get a few of those questions answered. Commercial real estate is a property that normally is leased out for business and retail purposes. To start investing in commercial real estate is a property that is typically leased out for business and retail purposes. Investing in commercial real estate involves the purchase or development of properties that have been designed with the intent of housing commercial tenants.
What are the types of commercial Real Estate?
Before we start getting into how to invest in commercial real estate or what owner-occupied is there are a few basics to know. Starting off with ” well what types of commercial real estate are there?” There are multiple types of commercial real estate and it’s important to understand the various types of commercial properties. This way, you can start thinking about the commercial asset type in which you want to specialize. Commercial properties serve a broad range of purposes, but are generally grouped into the following types:
- Special Purpose
Similar to multifamily, a major factor that draws investors to office real estate is multi-tenancy. Depending on the style of the building and where it’s located, the property can have one to dozens of tenants.
Office spaces are further broken up into Class A, Class B, and Class C assets depending on their age and quality.
Industrial properties can also vary quite a bit in size, depending on their specific use-cases. Industrial properties widely range in size and use and this asset class has taken off over the last economic cycle thanks to the rise of delivery.
Having multiple tenants within a single property creates multiple income streams, which helps remove a bit of the risk of the investment. If one tenant moves out of an apartment complex, chances are you won’t notice a big hit to your bottom line since you have many other tenants continuing to pay rent.
The multifamily asset class includes everything from duplexes with two tenants to apartment buildings housing hundreds
there are plenty of other types of real estate that would be considered commercial, that investors construct and own.
That’s where the idea of “special purpose” property comes into play. It is more or less the miscellaneous classification of CRE.
Examples of special purpose properties include amusement parks, bowling alleys, parking lots, stadiums, theaters, zoos, and much, much more.
What Is Owner-Occupied Commercial Real Estate?
Owner-occupied commercial real estate (OOCRE) is when investors purchase commercial real estate with the intent of utilizing the building for their own purposes. This strategy can be applied to any of the five commercial real estate types discussed above.
Having the option to occupy the commercial real estate in which you invest is just one of the many benefits associated with commercial investing. Keep reading to find out some of the other benefits that may pique your interest.
Importance of Earning Potential
Income potential. The best reason to invest in commercial over residential rentals is the earning potential. Commercial properties generally have an annual return of the purchase price between 6% and 12%, depending on the area, which is a much higher range than typically exists for single-family home properties (1% to 4% at best).
Retail tenants have a vested interest in maintaining their store and storefront because if they don’t, it will affect their business. As a result, commercial tenants and property owner interests are aligned, which helps the owner maintain and improve the quality of the property, and ultimately, the value of their investment. More flexibility in lease terms. Fewer consumer protection laws govern commercial leases, unlike the dozens of state laws, such as security deposit limits and termination rules, that cover residential real estate.
Commercial Real Estate is a Relationship-Based Business
There’s a saying that you have probably heard, “No one cares how much you know until they know how much you care.” That is so true in commercial real estate, with commercial property owners and brokers as well. Study the terms and know them, but I want you to start with relationships first. Real estate is a relationship-based business. I want you to build relationships with brokers, sellers, mentors, and other successful people. That’s where success happens first.
OnPointe Partners is a Global Real Estate Consulting Firm that is committed to crafting innovative and creative strategies that are rooted in our mission to transform communities through real estate. These projects promote economic growth. No matter the location or the community we influence positive change that produces measurable results worldwide. We teach our clients how to build wealth from real estate investing.