Commercial real estate encompasses many types of properties. The most common include retail outlets, shopping malls, office buildings, apartment and condominium complexes, industrial parks, and undeveloped raw land.
Buying commercial real estate is considerably different than buying a house. Commercial properties must comply with zoning laws and include provisions set forth in the Americans with Disabilities Act.
Office buildings, shopping outlets, and residential buildings must include adequate handicap parking, wheelchair ramps, and handicap access equipped restroom facilities. Property owners must obtain appropriate liability insurance prior to leasing space to tenants.
Commercial real estate is typically much more expensive than buying residential properties. A common practice amongst real estate investors is to partner with other investors to purchase commercial properties or large parcels of land. When investment groups buy shopping malls or apartment complexes they often enlist the help of a property manager who collects rental income and oversees property maintenance.
When real estate investors buy undeveloped land for commercial use they are required to obtain building permits from the local zoning commission. In order to erect buildings, raw land must be inspected and approved before construction can begin. Investors must engage in due diligence to ensure raw land is zoned for commercial construction prior to submitting an offer to purchase.
Investors must also be familiar with legal statues surrounding commercial properties. Real estate contracts should be reviewed by lawyers with experience in commercial real estate laws and building codes.
Investing in commercial real estate can be a complex and complicated process. In addition to obtaining required funds, investors must be knowledgeable about landlord / tenant laws, property taxes and insurance, and property management.
Most owners of commercial real estate properties hire a property manager to handle maintenance duties and landscaping, tenant screening, and rent collection. Others enlist help from leasing agents. The type of property management group depends on the type of building. An apartment building will require more attention than a retail building located in a shopping strip.
Investors must calculate income to expense ratios prior to buying commercial properties. When investment groups buy commercial real estate with low tenant rates, operating expenses can be higher than rental income. This is particularly important when investing in shopping malls, business parks, and apartment or condo buildings that require multiple tenants to break even.
Commercial real estate leasing rates are usually much higher than residential properties. While a house can cost $4 to $5 per square foot, commercial property rental rates can be double or triple that amount. Much depends on the type of property, location, and use of the facility. In most cases, commercial properties must have a minimum 50-percent tenant occupancy rate to break even.
In today’s real estate market owning commercial properties can place investors at higher risk of foreclosure than residential real estate. Financial risks must be calculated before investing in this volatile market.
Americans with Disabilities Act