Commercial real estate (CRE) is the act of purchasing property for profit generation. Such properties include warehouses, medical centers, industrial buildings, office complexes, and malls.
Commercial real estate is a very profitable business. However, it’s also capital-intensive, time-consuming, and requires a lot of expertise.
Commercial investments earn money through rental income or property appreciation. You can generate revenue through building management and renting out your property. With time, the property will also appreciate, and you can sell it for a profit.
If you’re looking to build wealth through real estate? This article will guide you on how to buy commercial real estate property to generate income.
Types of Commercial Real Estate Properties
There are many types of properties for people looking to invest in commercial real estate. Knowing which property to purchase is the first step in your investment journey. Below are the five categories of real estate investment properties:
1. Offices
Commercial office properties are buildings used by organizations and companies for work. Offices may include high-rises and skyscrapers in urban areas and mid-rises and office parks in suburban areas. Offices are leased to companies and start-ups.
Office spaces often come in varying styles and sizes. The lease terms for these properties are usually long-term, ranging between five to ten years,
2. Multifamily Complexes
These are properties that offer residential housing, where the owner is paid rent. Any building with four units and above is considered a multifamily property. Examples of such properties include apartments, townhouses, co-operatives, and condominiums.
Each multifamily building varies in size and number of units. The lease agreements for multifamily complexes are often short-term and flexible. The leases usually last up to one year, while others can be month to month.
3. Industrial Properties
Industrial properties are used for industrial operations. Such properties include warehouses, manufacturing, research and development, assembly, and refinery buildings. Examples of industrial properties include:
- Amazon distribution centers
- Oil refineries
- Pharmaceutical research facilities
- Vehicle assembly factories
Industrial properties are situated in areas that are not ideal for retail or residential property. Their location is steered by zoning regulations depending on their industrial business operations. Industrial real estate properties’ lease length is often five years and more.
4. Retail Properties
Retail properties provide space for businesses to sell their products and services to the general public. Such enterprises include cafes, coffee shops, clothing shops, and saloons.
Investors can develop retail real estate properties in large complexes for tens of tenants, such as strip malls, shopping malls, and other shopping centers. If you invest in retail real estate properties, your building’s geographic location will directly impact your earning potential. That’s because the area determines which retail tenants want to use your shops.
5. Special-Purpose Real Estate Properties
These are properties built and designed for a specific purpose, and it could be near impossible to repurpose them for different use. Such properties include schools, self-storage facilities, gas stations, and car washes.
The tourism and leisure business also has numerous special-purpose real estate properties. Such properties include airports, hotels, amusement parks, and stadiums.
Seven Steps of Buying Commercial Real Estate Property
Purchasing commercial real estate property is not an easy process. You will need to do a lot of research and work out the numbers. Commercial real estate properties often equate to increased rental income, longer leases, and higher purchase prices.
If you’re looking to invest in commercial real estate properties and you don’t know where to start, follow the seven steps below:
1. Ask Yourself What You Hope to Accomplish
Before buying any commercial property, it’s essential to ask yourself why you want to invest. What do you hope to accomplish? Determine your goals, and then look for a property that will help you achieve those goals.
2. Look at Your Investment Options
There are five different commercial properties, including industrial complexes, retail shops, and office buildings. Determine what type of investment property you’d like to purchase. Make the right decision depending on your goals and objectives.
If you are looking to provide low-income rental units for families in your area, you can consider investing in multifamily complexes.
3. Secure Your Financing
Before going out to look for the right property, try to secure your financing first. Numerous companies partner with real estate investors, helping them get the funding they require for their investments.
Securing a loan first will help you have a price range in mind when looking for the right property. It will also help you quickly and efficiently facilitate a deal once you find the right property.
4. Partner With the Right People
The real estate industry is a people business, and purchasing an investment property is no exception. Ensure you align yourself with the right people in the industry. You should also work with professionals who specialize in buying commercial real estate.
When hiring a real estate attorney or an agent, ensure you choose one specializing in the type of properties you hope to buy. Your attorney should be conversant with the commercial real estate laws in your state.
You should also consider hiring a certified personal accountant (CPA) to help you with the financial aspect of the process. You may need the services of certain professionals in the industry; don’t be afraid to ask for help. Working with the right people can be the key to closing the deal early.
5. Look for Your Dream Property
After taking care of your finances and choosing the right type of real estate property, it’s time to go property hunting. You can search for the right property online or ask a commercial real estate agent for referrals.
Remember your goals and buy a property that helps you attain them. No matter how good a deal is, remember that there is no good reason to purchase a commercial property if it doesn’t help you fulfill your goals.
6. Mind Due Diligence
Buying commercial real estate property is not the same as buying a residential property. Before signing any papers, conduct an audit, review the property, analyze the deal and run the numbers.
Look at the risks of investing and weigh the potential rewards. Do the rewards outweigh the risks? Can you find a better property that would help you better achieve your objectives?
This is where you examine and analyze all details about the investment. Once you’re sure that the property meets your goals and it will be beneficial to you, you can move forward with the deal.
7. Buy the Property
After finding the right property, make an offer with an exigency clause. Your proposal should have a contingency in case the property does not meet inspection standards. If the property is okay, review all documents and set up the appropriate insurance cover.
Commercial real estate is not a walk in the park. There is a lot of work that goes into the process; so ensure you are ready for the tiresome yet exciting process.
Are You Ready to Invest in Commercial Real Estate?
As one of the best wealth-building opportunities, many benefits come with investing in commercial real estate. Not only will your property appreciate, but you will also receive passive income, more substantial buying power, and tax benefits. Following the guide above will take you one step closer to building your passive income from real estate investment.
While the above list highlights how to purchase a commercial property, ensure you contact a professional to help you before buying any property. Real estate agents are better equipped to anticipate and navigate inevitable setbacks during the purchase process.
Today’s Commercial Real Estate Investing Trends
The real estate industry is one of the most successful and reliable wealth-building businesses for individuals looking for investment opportunities. The industry is expected to grow in 2021. However, most investors are worried about the long-term and short-term impacts of the Covid-19 pandemic on the real estate market.
Due to the pandemic, most commercial property occupants and companies were forced to adapt to remote working quickly. Unfortunately, most people didn’t expect the pandemic to last as long as it has.
As the economy slowly opens up, most companies are eager to get back to work. This means that tenants will return to the commercial buildings. The industry is also expecting demand for restructures and redesigned office spaces.
