Real estate investment can be a worthwhile undertaking if you know the right way to do it. In this real estate guide, you’ll learn the basics of commercial real estate, what it’s used for, and how a real estate agent can help you make the most of your investment.
What Is Commercial Real Estate?
Commercial real estate properties are designed to make money. The commercial land or building is used to create goods or services that are then sold to the general public. These operations range from small retail businesses to full-scale manufacturing plants.
Though it’s not abnormal for commercial property owners to run businesses out of their own real estate investments, it’s much more common for an owner to rent out space to someone else. The rent a tenant pays to the owner becomes that owner’s income.
How Does Commercial Real Estate Work?
When done right, renting out a commercial property can be an extremely lucrative way to earn a living. A person who invests in commercial real estate hopes to see a sizable return on investment (ROI). Appreciation is the key factor in making that happen. When a property appreciates, it becomes more valuable to future investors. For example, an owner who takes on necessary repairs or updates older finishes will usually sell their property at a greater value than originally purchased.
The value of surrounding buildings can also help your ROI. Imagine a previously vacant lot across the street becomes a hip entertainment area with movie theaters and restaurants. This will undoubtedly attract more consumers to the area, increasing the likelihood that your commercial property becomes more popular.
In addition to an increased resell price, appreciation allows a property owner to charge their tenants a higher amount to rent the space. This is income you can capitalize on immediately, without having to wait for resale. The more properties you own, the more rental agreements you’ll have. Choosing properties that are already highly valued or properties that have the potential to appreciate will net you more profits long-term.
What Are the Different Types of Commercial Real Estate?
Commercial property can be used in creative ways to generate income for both its owner and its tenant. To make things simpler, commercial real estate is typically categorized into six different areas:
- Special Purpose
Housing includes multi-family units, such as apartment complexes or duplexes. Hotel properties are similar, but they’re designed for temporary living and tend to offer amenities to make the person’s stay more pleasant. These can range from small, affordably-priced motels to casinos and even resorts.
Retail is the type of commercial property that is most familiar to the average consumer. These are your clothing shops, restaurants, electronic stores, and supermarkets. Sometimes one building includes multiple retailers, resulting in multiple lease agreements. One of these retailers is usually a recognizable chain store that’s situated to attract people to the area. This is referred to as an anchor store.
There are three types of commercial office space: Class A, Class B, and Class C. Each of these classes denotes a specific target of the market, with Class A properties yielding higher rent and offering a superior space with high-end finishes and amenities. When a property fits into Class C, it’s usually a low-rent option that’s meant to be purely functional. As you might guess, Class B properties fall right in the middle.
Like office space, industrial properties have distinct categories that define their intended purpose. Flex properties allow for both offices and manufacturing space. A distribution center is usually categorized as a bulk warehouse, while light-assembly facilities give you space both to store inventory and do minimal product assembly. Lastly, heavy manufacturing properties are customized to run a large-scale production.
The last type of commercial real estate is special-purpose properties. This class covers any property that doesn’t fall into any of the other categories.
What Do Commercial Real Estate Agents Do?
Commercial real estate brokers can make an investor’s job significantly easier. When it comes time to rent out your property, agents will take on all the listing responsibilities themselves. They’ll connect with the right people to find reliable tenants that are willing to pay the rent you’re looking to charge.
A broker representing the commercial property owner will also negotiate a lease agreement that benefits their client. Once a lease is signed, the broker receives a commission for all the work he or she did to rent the property. This is usually a small percentage of the total rent that will be collected over the lifespan of the lease. In commercial property, a lease agreement is typically between five to ten years.
Contact Unique Properties, Inc.
If you’re in the market to buy, sell, or lease Denver commercial real estate, let Unique Properties, Inc. get you the payoff you really want. Contact us today to hear more about the services we offer.