If you’re interested in buying into the real estate industry, it is important to start with the basics of buying and selling property. This includes topics you may find boring, such as classifications and zoning restrictions. Even if you have no intention of owning a strip mall or office building, you should have a full understanding of the industry, including commercial real estate.
Commercial Real Estate (CRE) a property type and zoning restriction. There are three basic property types – residential, industrial, and commercial. While there are more than three forms of zoning, most properties in a highly populated area will fall under commercial or residential. Today we are going to focus on commercial real estate as a property type.
Commercial Real Estate is defined as “any property owned to produce income.” Obviously, a lot can fall under that umbrella. Here are a few examples:
- Convenience stores
- Apartment complexes
- Office Buildings
- Car Washes
- Malls
- Restaurants
- Theatres
- Gas stations
- Theme parks
- Hotels
CRE properties can be broken down into several categories. Here are three common categories to invest in:
Office Property
CRE office properties can include anything from small buildings for professional use by a single tenant to skyscrapers full of offices. These properties are classified by categories A, B, and C.
Class A: These buildings are at the top of the food chain. Class A properties are often new but could include older buildings if they have been renovated extensively. They are generally in great locations and are managed professionally.
Class B: These properties are highly sought out by investors due to their potential for a high ROI. Class B buildings are often older, but able to be renovated and improved. Infrastructure often requires investment, but in general Class B buildings are well-taken care of and well-managed.
Class C: If you invest in Class C, know that the buildings will most likely be older, in a bad location, and need major renovations to infrastructure. These properties often have lower occupancies due to the office space’s lower quality. Class C buildings can remain vacant for longer periods of time and often are used for redevelopment.
Retail and Restaurant Property
Retail and restaurant properties can either be stand-alone buildings or a larger structure encompassing multiple businesses, such as a strip mall or office building. Real estate investors are usually drawn to properties that can encompass many businesses and tenants. These properties often include malls and other large retail centers, because with multiple occupants, there is less risk. Strip centers, community retail centers, power centers, and regional malls are a few types of property you may want to research if you are interested in investing in this category.
Multi-family Units
While many people think of apartments, like those owned by Taylor Equities, as a residential property, any apartment building that is a fourplex or larger can be considered commercial real estate when investing. Apartment buildings, extensive complexes, condominiums, and even smaller multi-family buildings all fall under the category of commercial real estate. This type of property can offer less stability long-term but is always in demand and offers high returns. Multi-family real estate is personally my favorite type of investment, and a topic worthy of extensive research. Check out my blog for insights into the multi-family real estate market, and to learn why I choose to invest in apartment buildings as part of my commercial real estate strategy. –Steven Taylor, Taylor Equities