From Wikipedia, the free encyclopedia
The term commercial property (also called investment or income property) refers to buildings or land intended to generate a profit, either from capital gain or rental income.
Definition
Commercial property includes office buildings, industrial property, medical centers, hotels, malls, retail stores, shopping centers, farm land, multifamily housing buildings, warehouses, and garages. In many states, residential property containing more than a certain number of units qualifies as commercial property for borrowing and tax purposes.
Commercial real estate is commonly divided into four categories:
Categories of Commercial Real Estate| Category | Examples |
|---|
| Retail | medical centers, hotels, malls, retail stores, shopping centers, public houses |
| Office | office buildings |
| Industrial | industrial property, farm land, warehouses, garages, industrial properties |
| Multifamily (apartments) | multifamily housing buildings |
Of these, only the first three are classified as being commercial buildings. Residential Income Property may also be used to mean Multifamily Apartments.
Top tips for investing in an emerging commercial market
1. Know your goals
2. Restrategise and regroup
3. Reduce your personal debt
4. Pay down your owner-occupied residence
5. Research & know the market
6. Understand the cycle
7. Look for opportunities
According to Real Capital Analytics, a New York real estate research firm, more than $160 billion of commercial properties in the U.S. are now in default, foreclosure or bankruptcy. No significant change is expected in the market.
Preparing to buy a Commercial Property
Purchasing a business or commercial property can be complex and daunting, especially if it is your first business venture. Below are some key questions to ask when buying a business or property.
1. What am I looking for?
2. How much is it worth?
3. How does the process work?
4. How do leasehold, freehold going concern and freehold investment yields or multipliers work or differ – the calculation to value or capitalise the net income or net surplus before owner / managers salaries to arrive at the value of the business or property?
5. Has the “Add Back” calculation been applied to the financial accounts to achieve the notional bottom line prior to applying the correct current market multiplier for the business or property – this changes depending on location, length of lease, condition of property, timing of next rent review etc?
6. How long has the lease term got to go, how long before the next rent review, is there rights of renewal on the lease, is there variations to the original lease?