What is a Commercial Property?

In this article, we will know about commercial properties and how are they expect higher annual turnover.

A brief note on Commercial Properties

Commercial properties are those lands that are for commerce or business use. The investment cost in building and the customization for the tenant is higher than residential buildings. However, at the same time, the net income return from a commercial property is relatively higher, so it the best option for investment.

Commercial real estate is divided into four classes considering their business purpose. These are –

• Industrial purpose
• Official space
• Retail zone
• Multi-family rental

All these individual properties are further subdivided into three classes of buildings.

• Class A buildings are the most rented ones as they are the best in terms of age, aesthetics, infrastructural quality, and prime locations.
• Class B buildings are little older ones and are generally considered by investors for remodelling. Their prices are lower in comparison to Class A buildings.
• Class C buildings are the oldest commercial buildings located at unattractive locations and require good maintenance. These are usually not invested in.

Beside business buildings, there are several commercial properties for lease. There are three types of leases

• A single-net lease
• Double net lease
• Triple-net lease.
• Gross lease

The case of a single-net lease, the tenant needs to pay the regular rent, utilities, and property tax while the owner pays maintenance, repair, insurance, and all other improvements required for the property.  A double net lease, the tenant pays his regular rent, utilities, property tax, and improvement payments for the part he is staying while the landlord pays only for maintenance and repair. Triple-net leases, only the structural repairs are paid for by the owner. All other expenses, along with the rent are paid by the tenant. In the case of a gross lease, the owner needs to pay all the property taxes, insurance, and maintenance charges while the tenant pays only the regular rent.

If you are taking a commercial property for rent then you must consider some factors.

• The first and foremost factor is the location of the property. You need to look into all other properties in the location and find out where the difference is or what the rent is.
• Then pay attention to the duration of the lease. For small businesses 1-2 years with an optional renewal period is fine but it is not the case for large businesses.
• And finally, look into how much extra you need to pay after paying your rents. Generally, many hidden costs may exceed your budget for rental.

When buying a commercial property for sale you don’t have sufficient capital to purchase, then real estate investment trusts (REITs) will help you. These are a type of mutual funds offering shares to the investors to increase the capital price of the income-producing properties. Thus you can buy shares in the property and do not need to purchase it at a time.

In what ways can an investor invest in commercial real estate?

Investors can invest in two ways – either by direct investments or by indirect investments. Who have sufficient capital to purchase an entire property having a piece of good knowledge about the Industry or can get professional help from a firm uses direct investments.  The Investors can invest through indirect investments with the help of various market security owners like Real Estate Investment Trusts (REITs). There are several commercial properties for sale in Mumbai, Hyderabad, and other parts of India. But before purchasing, investors must consider all the factors including location, price, and durability.

Difference between Commercial Property and Residential Property

Residential properties include single and family type buildings like apartments, and flats. These properties have a low cost of entry, and therefore are the best option for beginners in the real estate business than considering commercial land for sale. The laws for residential properties are less complex and easy-going than commercial properties.

Commercial properties

Commercial properties are for business purposes. They are having high risk and high capital requirements. Besides this, the potential of giving higher ROI is great in the case of commercial properties. Loans are lent only to business entities while for residential properties banks offer loans to individual borrowers. The borrower of commercial loans needs to submit the details of his business plans. A lot of questions arise like who is going to pay the loan, what will be the tenure of repayment, and what are the additional maintenance costs. The repayment period is smaller for commercial loans while there is a longer period offered to residential borrowers.

When buying a commercial real estate, always try to get expert help. You cannot afford to risk the amount of money invested. A small mistake can ruin your entire business. Besides looking for the price, location, additional cost, quality, and all other constraints get professional advice.

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