Commercial real estate is one of three main types of real estate. This type of real estate has to deal with real estate property solely used for business purposes, such as office parks, restaurants, and malls. There are four different types of commercial real estate leases with each requiring different responsibilities of landlord and tenant.
A gross lease lets the tenant pay only rent and the landlord pays for property tax, insurance, and maintenance. A single net lease requires a tenant pay rent and property taxes. A double-net lease requires a tenant pay rent, property tax, and insurance. Lastly, a triple-net lease pay requires a tenant to pay rent, maintenance, property taxes and insurance.
Investors are greatly encouraged to invest in this type of real estate and here are some of the reasons to do so.
Commercial real estate property always garners a higher rent per square foot than residential real estate property and therefore commercial real estate property is ideal for investors with the goal of making more money.
Commercial risks and possibilities
Commercial real estate has a lower vacancy risk, because of the availability of several units, the possibility of having a vacant space is less likely than with residential and single-tenant real estate property.
Most investors are not comfortable with larger investments such as office buildings. There is less competition from investors in the commercial real estate business.
Owners of commercial real estate properties are less emotional about selling their property than homeowners and are more flexible to the market. This means the sales of property is mainly from a business perspective.
Investing in commercial real estate provides the owner a type of tax shelter through depreciation and maintenance of the building. The depreciation write-off allowed by the IRS shelters your business income.
As described earlier with the different types of lease options, you can get tenants to pay most, if not all of the business operating expenses, which is a very common occurrence in the commercial industry. Plus, most lease agreements include landlords getting a percentage bonus from extra sales made by sellers during the time period allocated.
Rent payments from tenants provide the owner with cash to pay the mortgage of the buildings.
Investors get financial leverage with long-term financing combined with partial seller financing.
Long term investment in this type of real estate provides owners with capital appreciation and increased return cash on investment, because of the higher rental rates over time.
Here are only some of the advantages investors in commercial real estate properties have over residential real estate properties. With the tenants paying almost all expenses lets the owner to relax and have time to take care of other businesses or go on vacation, relax or invest in other fields.