Introduction to Commercial Real Estate

What is commercial real estate? Commercial real estate, basically, is any real estate that is not a home for people to live in. An office building, retail stores, and warehouses are all commercial property. Pretty much anything that you don’t live in is a commercial real estate. Real estate business has become one of the most overwhelming or profitable in the world today.

Commercial real estate is an investment that most people overlook. If you have been looking for an investment, you might want to look into the commercial property. Surprisingly enough, sometimes commercial property is cheaper to invest in than the residential real estate. Why? You may ask. You know how office buildings have suites. Often there are many offices all in one building. These suites aka lots can be purchased separately, and then rented out to a business.

For most people investing in commercial real estate never crosses there mind, but if they knew how much higher the yield (annual rental income divided by what it cost to buy the property.) was. Typically a residential property yields 3-5% while a commercial property can yield up to 7%. This is called the Cap Rate or capitalization rate.

With commercial real estate, you aren’t just buying a piece of property. You are also buying a form of business that will generate an income. You can have a substantial income from a commercial real estate. Agents who work with selling the commercial real estate don’t get paid as often because commercial real estate doesn’t sell as well as residential real estate, as proven by liveloveathome.com/blog/philadelphia-commercial-real-estate/.

Financing is done completely different with commercial property than with residential. Seller financing is used. An example of seller financing is the seller might offer a few years of seller financing for the buyer to get an idea of how well the property generates income. Therefore the buying/selling process can be a long-drawn-out process.

If you decide that commercial real estate is something you want to pursue, you will need a large down payment of 30°/o. You will also need collateral, something with value to it that the bank will consider if they need to foreclose they can get their money back.

One thing I would stay away from is balloon loans. A balloon loan is a loan that you pay on only the interest for the entirety of the loan and when you come to the last payment you have to pay the entire amount that the loan was for or refinance the loan.

You could also take on partners. You could set it up so that you are the primary partner and everyone you partner with are limited partners. The limited partners help generate funds but you being the primary partner make all the final decisions. That would make the investment mostly your property. This is a popular way for businessmen to go.

So, that is my overview of the introduction to commercial real estate. An investment opportunity that is often not even thought about. But now that you have read this, you have.

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