Table of Contents
As a real estate investor, have you considered investing into commercial real estate? Or perhaps you are still trying to understand how it operates when compared to the residential market.
Commercial real estate has become increasingly attractive to investors looking to diversify their portfolio during recent years. However, unlike residential real estate which has a much narrower scope, commercial investing comes with a wider variety of unique investment opportunities. As a result, not all commercial real estate options are created equally.
So, let’s take a look at the variety of commercial investments you can make and what you should know before investing in different commercial real estate options.
First, you need to know that while there are plenty of commercial real estate options, you need to be careful with how you finance them. That is why we want to offer you a free strategy call with us, so that regardless of which commercial real estate options you choose to pursue, you can get the best financing available. Simply click the link below to book your call today.
The Three Classes of Commercial Properties
When classifying commercial real estate options, properties are categorized by age, quality, and maintenance needs.
The three classifications are:
- Class A: These are newer buildings with high quality infrastructure and a prime location.
- Class B: These properties are slightly older and in worse condition.
- Class C: These are buildings that are at least 20 years old and are in need of maintenance.
The 8 Commercial Real Estate Options
Beyond the three main classifications, commercial investments are also divided into eight categories. These categories are:
This category includes any office building with workspaces available for different businesses to rent out, as well as businesses operated by the property owner. These can be large office towers or smaller independent offices
Retail properties can be any building used for retail use. This includes malls, shopping plazas, single storefronts, and department stores. In the case of larger retail properties such as malls, investors and property owners will find a primary client – often called an anchor client – to help attract further businesses into the space.
This category covers any real estate meant to be used for industry. This can include automotive production, bulk warehouses, light assembly, and other industrial properties. Industrial properties will often have office space available on-site, typically for administrative work related to the property’s industrial use.
Commercial multi-family properties are pieces of residential real estate that are being used for a commercial purpose. These properties are classified as such because of the rental income they are generating for the property owners as well as any property management companies caring for the property. This category includes all rental properties with more than four units and can include rental properties with four or fewer units.
Under the hotel banner, there are three subcategories. These are large full-service hotels, multi-room hotels with at least one restaurant or bar on site, or smaller limited-service hotels. Properties in this category can offer small rooms for brief stays and vacationing, or larger rooms for extended stays with additional amenities.
The mixed-use category includes any property that combines any of the previous categories. This can include retail spaces with apartments located above, combination office and residential spaces, or retail spaces with offices available on the property – as often seen in certain shopping centres.
The land category includes farmland, vacant plots of land, agricultural land or land that was previously used for industrial or commercial purposes but is now available for reuse.
This final category includes any commercial property that is not included in the above categories. This can include parking lots, theatres, amusement parks, entertainment spaces, private parks and more – making this the most diverse choice out of all your commercial real estate options.
Discover How To Buy Commercial Real Estate With This Step By Step Guide
The Advantages of Commercial Real Estate
There are a wide variety of advantages to owning various commercial real estate options that are not shared with residential properties. This includes:
Increased Income Potential
Commercial properties are traditionally more profitable than residential investments. According to estimates, the average commercial property in Canada sees a 6-12 per cent return on investment annually. Meanwhile residential properties usually cap at approximately 1-4 per cent.
As the majority of commercial properties are tenanted by businesses or used for commercial purposes that extend beyond the property owner’s own use, investing in commercial real estate is a reliable way to build professional relationships. These relationships can be mutually beneficial for both the investor and business owners by offering network opportunities and room for both parties to grow and expand together.
Limited Working Hours
As the majority of businesses are not open 24 hours a day, commercial real estate investments have more reliable quiet hours where the investor does not need to worry about receiving calls regarding the property – save for calls regarding emergencies and urgent concerns.
The Risks of Commercial Investing
Of course, much like any other investment scenario there are risks and burdens associated with investing in commercial real estate.
Time Commitment and Management
Unlike single-family residential units, commercial investments often require much more active attention from the property owner. When investing commercially, investors are often working with multiple tenants and multiple leases which creates a larger commitment for the investor to spend their time managing.
Alternatively, the investor can hire additional help to manage these commitments, however setting up and maintaining those management systems has its own time and financial costs.
Larger Initial Investment
Commercial properties usually require more capital up front. Not only do these properties typically require a larger overall down payment, but they also have larger maintenance and repair costs associated with preparing them for use after acquiring the properties.
Commercial Real Estate Options and Financing
There are a wide variety of financing options unique to different commercial real estate options and investors. So, it is important you use a broker who can help you find the best financing stream available to you. Fortunately for you, at LendCity we work with a wide variety of lenders in order to help you secure the most funding at the lowest available interest rates.
So, if you are interested in exploring the world of commercial real estate options investing or are an existing investor and looking to buy more commercial properties, give us a call at LendCity. Our dedicated commercial department will gladly help you secure the best financing available for your next commercial deal. For more information, our number is 519-960-0370 or you can visit us online at LendCity.ca Alternatively, you can book a free strategy call with us at the link below.