We all want to be successful in life and there is no better way than owning a commercial property. Especially in 2018, the real estate market is booming and highly profitable as a result of rental income and capital gain. Some of the commercial properties are office buildings, industrial property, malls, departmental stores the list is endless.
In this post, we are going to have a detailed discussion about the best types of commercial buildings which will enable you to make smart and shrewd investment decisions.
They are usually categorized base on classification and location. On location, there are two types: Suburban and Urban.
These are properties or office space that are located in the business hub of cities. The examples are skyscrapers, high-rise building and apartments that are millions of square size feet.
They are office buildings that are relatively smaller in size and are located outside the cities. They are usually office parks in mid-sized buildings.
When it comes to classification, the condition that the building is in is very important. Based on this there are 3 categories:
The multi-family category comprises of residential properties that are not single family. They are classified into 6 categories:
Retail are properties that accommodate chain, departmental stores, and restaurants that we visit, they are often categorized into multi-tenanted, standalone and single use. This particular sector is a bit complicated as different factors come into play such as:
This properties house industrial operation to a variety of tenants, their location is usually outside urban areas and along major transportation routes. They are mainly low-rise buildings that comprise of industrial parks.
Industrial properties are grouped into four types:
Heavy manufacturing: These properties have heavy types of machinery and are highly customized in the production of goods and service
Light assembly: They are not heavily equipped and are mainly used as storage space or assembly of products
Bulk warehouse: This building has a large floor space and acts as product distribution centers
Flex industrial: They are properties that contain both industrial and office space.
In real estate, there are various types real estate leases.
In this lease rent is inclusive and the landlord pays all the expenses that come with repairing and maintaining the property like taxes, insurance, and other utilities. In most cases, excess utility expenses are billed back on the tenants. It is important to note that the tenant is required by law to pass his/her own taxes and property insurance.
This type of lease is highly beneficial to the tenant as the landlord with taking care of all the responsibilities of the property which allows the tenant to concentrate fully in the growth and development of their business.
In this type of lease, the landlord will charge a lower base rent of the property and will cover part or all the repair and maintenance of the property. And often the percentage paid is negotiable. There are three types of net lease:
Single Net Lease: In this lease, the tenant pays the base rent and also the pro-rata shares of building's property tax. The landlord will cover all the property expenses while the tenant will cater to his/her own utility and janitorial cost
Double Net Lease: The tenant pays the rent base, pro-rata property share tax and insurance premiums of the property, the landlord covers for structural repairs and maintenance and the tenant covers for utility and cleaning expense
Triple Net Lease: In this type of lease the tenant pays all or parts of the property insurance, taxes, common area maintenance items and monthly rent base. Normally the landlord estimates the monthly expense and charges their tenants based on their pro-rata shares. The tenant also covers their own insurance, taxes and utility expenses.
Absolute Triple Net Lease
This is the least popular type of lease as the tenants will cover for every anticipated risk, they will have the full responsibility of the building regardless of the situation.
This is the most popular type of lease as both the landlord and tenant negotiate all the property insurance, taxes, and common area maintenance items to be included in the monthly rent base that is paid in lump sum. However, there is the exclusion of utility and janitorial expenses that are covered by the tenant.
Commercial real estate loans are mainly used to purchase or repair and maintain a commercial property. There are various types of real estate loans and you need to have a clear understanding of what these loans entail.
This loan type is convenient as it provides instant cash for immediate property requirements. It's mostly temporary with a repayment period of less than a year and is usually financed by personal creditors. Minimum requirements are outstanding credit score and evidence of income. Debtors are required to show the ability to cover the building expense and repaying the loan
This loan is the same as fixed mortgages for purchasing commercial property. Borrowers must put their property as collateral security while the rate of interest is determined by value to loan ratio. Borrowers must have an exceptional credit rating and a substantial saving in both personal and business accounts.
This loan is more suitable where there is equal sharing of the properties losses and profits. It's usually offered by investment firms and private investors. The two parties are required to submit the application of the loan and what makes this type so popular the relationship amongst the partners or applicants do not require to be disclosed in the application forms.
As highlighted there are different types of real estate properties, leases, and loans. As a tenant it's advisable you have a clear understanding of all these aspects before venturing into any transactions, the above post will greatly help you in making wise investments decisions to secure your future.