When the topic of investment comes up, you probably think of stocks, bonds, and residential real estate. However, buying commercial real estate is more attainable and valuable than most think. This short guide will help you get started in buying your first commercial property.
What is commercial real estate?
Any piece of real estate that is solely used for business purposes is commercial. For example, it could be an office building or a storefront. Commercial property is a much sought-after asset and for good reason.
Commercial real estate can be challenging at first, but this type of property has proven over and over to be a better investment than residential real estate. As a potential investor in a business space, it’s important to consider what potential tenants need to pay for rent. For example, owners of office buildings suffered some losses during the COVID-19 pandemic. On the other hand, the owners of warehouses saw positive returns with an increase in online shopping and orders. As you can see, investing in the right kind of commercial property is vital.
Types of commercial real estate
It’s valuable to note that there are different kinds of classifications and designated zones for commercial real estate. These categories are determined by age and quality, with classes A, B, and C as options. Here are the differences:
- Class A: The best location, newest features and most up-to-date infrastructure.
- Class B: Middle-of-the-road buildings with average locations and features.
- Class C: In need of maintenance, poor location and unreliable infrastructure.
While you may think that Class A properties are always the best to consider buying, this isn’t always the case. Not all real estate properties are created equal, so investor discretion is crucial.
Benefits to commercial real estate
One major advantage to buying commercial real estate is the lease length. Residential leases usually have a max length of one year. However, commercial properties often have much longer terms. Business News Daily reports that commercial lease lengths are normally at least three years.
According to MasterClass, there are four types of commercial real estate leases. They are:
- Single net lease: Tenant pays for property taxes.
- Double net lease: Tenant pays for property taxes and insurance.
- Triple net lease: Tenant pays for property taxes, insurance and maintenance.
- Gross lease: Tenant only pays rent and the landlord is responsible for everything else.
The landowner should decide which type of lease makes the most sense for their property, but a gross lease is most attractive to a potential renter.
What to keep in mind
If you’re interested in commercial property investments, it’s extremely important to do your own research and seek advice from professionals in the industry. This investment option might not be right for you if you’re new to real estate investing as a whole, but with the right amount of dedication and business savvy, commercial real estate could make a nice addition to your asset portfolio. Reach out to The Federal Savings Bank to get your finances in order today.
Subject to credit approval. Terms and conditions may apply. Property insurance is required on all loans secured by the property.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to you individual situation.
