Commercial property is a property that is solely used for business purposes. It is designed to create a workspace for businesses and industries. Property is also set up to run retail and restaurant businesses. The other types of properties are residential and public buildings. There are several different types of commercial loans and real estate buildings that you may want to make yourself familiar with.
In the majority of situations, the property is leased to tenants who rent out the place. Some business owners do own their property. Leasing is the most common in corporate offices. Most strip malls are filled with least out properties as well.
Commercial real estate can be broken down into four basic classes. These classes are assigned depending on the function of the commercial property. They include:
Industrial properties are factories and refineries. Offices are typically rented on a tenant base, except for large corporations, and are places of business. Retail includes shops and restaurants. While we may think of restaurants as being different, they fall under the category of retail. This is because they sell food. Multifamily is residential properties that are being rented out to multiple families. These buildings are commonly called apartment complexes. Because someone owns it and is collecting rent, it is a place of business that is considered commercial.
The commercial real estate falls under different classes. This depends largely on property value. There are three different classes that a building can be.
These buildings are often new and have beautiful architecture. The outside and inside are well maintained and have been built to the most modern standard possible. The location is also an extremely important factor. Prime locations, if the building is in good quality, are a requirement for the property to be designated Class A real estate.
These buildings are typically older, but they are generally in good condition. They are not as well maintained and may not be in as great of an area. For investors, class B real estate buildings are typically the ones chosen to be flipped. A profit can be made if these buildings are bought and restored to bring them up to class A.
Class C buildings are the worst quality. They are typically old buildings that have a lot of maintenance issues. They may have issues with the foundation and have a bad roof. They aren’t in attractive areas in the majority of situations. These buildings are sometimes bought to be flipped for class B; however, it is extremely difficult to flip them for class A.
There Are Several Types Of Leases
A property owner can work out several different types of leases with their tenants. Leases for apartment buildings are different and are not listed here. When renting to business, here are the four different types of leases given by the owner:
- Single-Net Lease
- This lease makes the tenant responsible for paying property taxes and rent. This lease comes with the least amount of charges besides gross.
- Double Net Lease
- This lease also includes insurance. Rent and property taxes do need to be paid as well.
- Triple Net Lease
- This lease makes the tenant responsible for paying for maintenance. The tenant will now have to pay rent and everything else that goes with the property.
- Gross Lease
- This is the least constricting type of lease. In a gross lease, the tenant only has to pay rent.
The Landlords Goal
The landlord has to think about three factors that will help him run his building. He needs to keep his rents as high as possible to make the most profit. He needs to prevent resident turnover. It is also important that he minimizes vacancies. To accomplish all three, a delicate balance must be put into place. Resident turnover must be discouraged by fair rent prices. When resident turnover is under control, there will be fewer vacancies. The prices also need to be kept under control to attract more residents; however, keeping the price as high as possible, with those factors considered, maximizes the profit for the landlord.
The amount he will be able to charge depends on the property condition and its location. A landlord can keep a property in Manhattan at a much higher price and have his tenants stay there then he could in Houston. Location is almost the most important factor. A property in Houston could be a lot nicer than a property in Manhattan. The property in Manhattan can still be rented out for more. The quality of the building is only a factor if the building is in the same area as another it is being compared to.
Where Is An Excellent Place To Purchase Real Estate?
Locations, where the property is limited, is an excellent place to purchase real estate. New York City only has so much space. Unless they started building in the parks, it’s not going to happen, more buildings are not going to be constructed. In most situations, new buildings are only constructed after an old one is torn down. The inability to build new property is what makes real estate an excellent investment there.
The Advantages And Disadvantages Of Owning Real Estate
Real estate can be fairly low maintenance. You just need to collect from people every month until their lease is up. With that said, there are some things to consider that may not be quite as positive. You are still responsible for paying for maintenance and mechanics unless you have your residents sign the leases listed above that have them agree to pay for them. These leases are less attractive to renters. It can be difficult to fill the building.
Real Estate Is Complicated
Real estate is complicated. Many different factors come into play when running a real estate property. There are also many different types of real estate to consider investing in. You should not avail of commercial building loan without doing proper research. It’s a complicated world, but you can make money in it.