Usually, when you think of property investment and its benefits, the first thing that comes to mind is residential real estate—family homes and apartments. But don’t discount commercial real estate as it’s a viable option for producing a significant return on investment too. 

 

Given the availability of residential real estate, it’s no wonder commercial properties are often overlooked––especially since there are less options to source commercial properties online. 

 

But with a little know-how and the right strategies, you might find that commercial real estate is a solid investment. And with commercial property sales expected to improve in the next few years and more foreign investors looking into commercial real estate, you can rest assured that your commercial properties are going to receive higher income in the years to come. 

What is commercial real estate? 

 

Commercial real estate refers to properties that aren’t residential and are used for business-related activities. This includes establishments like restaurants, shopping malls, hotels, hospitals, and office spaces. 

 

These properties differ from residential real estate because they’re not sold or rented to individuals or households, rather they are leased to shops or business entities to generate income.

 

Commercial properties also typically yield a higher monthly income when compared to residential properties. Since companies receive more earnings per day and hold a higher purchasing power, they can accommodate increasing rental rates per year.   

 

Moreover, commercial real estate appreciates with time–especially if the property is well-maintained and updated with the right health and safety regulations. This consequently allows you to increase your leasing fee and selling price should you consider listing your property on the market. 

 

While the residential property market remained largely unaffected by the pandemic in Australia, several commercial properties are being sold at much lower prices since the owners are no longer able to maintain these spaces. Commercial properties like non-essential retail stores and service-oriented shops were some of the first to close down because of the outbreak. 

 

As unfortunate as it is, this allows you to purchase commercial properties at a significantly cheaper price today. 

 

You can even invest in commercial spaces that thrived and grew in spite of the setbacks brought by the pandemic. These include warehouses, e-commerce facilities, and supermarkets.

5 things you need to know about commercial real estate 

Knowing the differences between commercial and residential properties is just the first step to understanding commercial real estate. 

 

Here are five important details you need to know. 

1. The types of commercial real estate property

 

Commercial real estate properties are divided into six different types:

 

1. Office properties – refer to buildings and working spaces used by businesses to accomplish their day-to-day operations. These properties are grouped into three categories: Class A, B, and C. Classifications depend on the property’s quality and placement. And most real estate investors choose to buy Class A or B properties because they are the most likely to produce a significant return on investment if sold.   
   1. Class A office properties have the best location and overall facilities. This means that the infrastructure is situated in a premiere spot and is clean, well-structured, and all safety and security building measures are up-to-date.
   2. Class B offices, on the other hand, refer to well-maintained working properties but in a less-than-desirable location. 
   3. Class C offices are the least profitable of all three, as they relate to properties that are in an inconvenient location while needing serious repairs and renovations. 

 

1. Retail properties – are the strip malls and shopping centers that collect fees from store owners for the use of their space. 

 

1. Industrial properties – are the warehouses and storage facilities used for the manufacturing and assembly of products.

 

1. Multifamily commercial real estate – refers to apartment complexes that earn money from the residential rental fees of tenants. 

 

1. Hotels – receive income from guest bookings and use of their facilities including function rooms, swimming pools, and in-house restaurants. 

 

1. Special purpose commercial real estate – refers to recreational and income-generating properties like theaters, amusement parks, and even zoos.  

 

Each of these different types of commercial real estate properties have their own set of risks and benefits when purchased. It’s up to you to decide which one you think is best for your individual situation.  

1. Selling commercial real estate vs investing in commercial real estate 

 

Whether you plan on selling or investing in your commercial property, you will need a large starting capital. It may seem expensive at first, but it will be worth it when you receive a higher payment once the property is sold or invested in. 

 

If you’re selling, you can expect immediate positive cash flow if your commercial property is sold to large companies or property developers. Though you have to understand that this will be a one-time, big-time payout—meaning you will no longer receive additional income after the sale goes through unless otherwise stipulated in the contract.

 

This is in contrast to investing in commercial real estate, where you can earn monthly income from the rental fees of your tenants. As mentioned earlier, this will yield a continuous source of revenue for you in the coming years, allowing for passive income. 

 

1. Where to find commercial real estate listings

 

Unlike residential real estate properties that can be easily compiled into a Comparative Market Analysis (CMA) report, commercial real estate listings are a bit more difficult to find. 

 

Many of these available property posts come from a seller’s respective website–many of which list the property as “off-market” or just “for lease.” So, one good way of finding a list of available commercial properties for sale in your desired area is to hire a commercial real estate leasing broker who has inside knowledge on what’s available and where.  

1. Commercial real estate loans

 

Finding enough funding for your property purchase can be stressful. So, it helps to apply for a commercial real estate loan. This particular kind of loan allows you to pay for your purchase in installments, with the commercial property serving as collateral. 

 

Since commercial real estate loans are secured loans, this assures the parties involved—the property seller and buyer—that payment is being received on both ends. 

 

Commercial real estate loans can also come in different forms, such as: 

 

• Hard money loans – are short-term loans offered by private individuals or companies, rather than commercial banks. 
• Bridge loans – give buyers the necessary capital to purchase new, commercial property, while waiting to sell off their current or old properties.   
• Loans funded by the seller – are the ones that can be paid back to the seller in the form of installments. This is most commonly seen in commercial property purchases of apartments and multi-home complexes.  

 

You can usually apply for commercial real estate loans through commercial banks. But buyers can also obtain this from third party lenders, insurance companies, and even through personal crowdfunding efforts. 

1. City development plans (aka the future)

 

As the country continues to develop, so does the commercial real estate market. It’s important to stay on top of the advancements in city development as they affect the price, demand, and availability of commercial properties. 

 

By staying updated with these changes, you can avoid making the wrong decision when it comes to real estate property purchases and make the most out of your commercial properties. 

If you have any questions or inquiries about commercial real estate, give us a call as we’re happy to discuss it further with you.