Commercial Real Estate Investing Basics

Commercial Real Estate Investing Basics

What is the difference between Commercial Real Estate and Residential Homes?
In residential real estate, pricing is determined by the seller. Comparables "comps"are analyzed for numerous variables such as price per square foot, number of bedrooms, number of baths, garages attached or unattached, pool, central vacuum, location, lot size, view and along with other features. Athough the valuation of a single family home; is established by the sales of comparable houses with in the same region. Commercial Property is valued by the income it produces.

Commercial Real Estate is generally defined as any property that is used for the purpose of commerce. For example: an office building, retail store, shopping center, a warehouse or an apartment building with five or more units. Investment real estate is generally defined as property that is purchased for the income it produces.

Commercial Real Estate's value is based on numbers & calculations. Commercial property values are much less subjective and much more focused on the income the property will produce and the cost you will have to pay to keep that income stream coming in. Investing in commercial property will often result in a greater cash flow and will often result in
more income per square foot due to the commercial nature of the property. In addition, commercial property will generally have multiple tenants. This helps to spread the risk. With a residential property if the tenant defaults on their rent the owner is left with no income. With multi-tenant buildings, if one or a few tenants default on their payments, there will still be other income coming in from the other tenants.

With Commercial Real Estate, you aren't buying property as much as you are buying an actual business. You are buying both the Physical Property AND the Income Stream associated with the building. The income stream is a result of the desirability of the product and/or service that is housed within the property. The Income stream is also, called Cash Flow.

There are 4 Sources of ProfitWithCommercialRealEstate Investment Returns:

Cash Flow
Appreciation
Equity Growth
Tax Benefits

When looking at commercial properties purely as an investment rather than as a partial-use property for you own business, the most important factor is supply and demand. The ideal property is located in an region where vacancy is low and the space available for new development is limited. Low supply and high demand means favorable rental rates as well as the hedge of a higher rate of appreciation. The strength of the local economy of the region will also affect the value of your purchase so you will want to check employment rates though the Bureau of Labor Statistics along with other economic growth and strength measures.

A Commercial Real Estate Investment is a dynamic investment. During the ownership of the property's many factors are changing. Equity is building, Cash Flows can be increasing or decreasing and there may be Appreciation. This continual change is what makes owning Commercial Real Estate exciting and challenging.

The first step you need to take is to gain the Knowledge, Tools, Processes and Strategies that you need to be Successful. With my online training course: ProfitWithCommercialRealEstate.com. You will be provided with the most effective strategies and processes, to quickly make money in the world of Commercial Real Estate.

Candy Bean,ChFC is actively involved in Commercial Real Estate Investing and the Author of ProfitWithCommercialRealEstate.com online training course.