Understanding Commercial Real Estate

When I told my friends that I was now selling commercial real estate, some of them asked the question, "What is commercial real estate?" Most people know what residential real estate is - the buying and selling of homes, but there are those who have some misunderstanding about what is included in the buying and selling of commercial properties. buy house clayton nc

The first thing you want to know is what kind of property can be named commercial real estate. The basic rule is: if you live in it, it is residential, otherwise it's commercial. To put it in economical terms, any building where commercial transactions take place is commercial real estate. However, the reality in the field is more complicated than this. A building with three rooms and two bathrooms is definitely residential; a building that houses three shops is by all means, commercial. But exactly how about a building which has five shops and five living apartments? Here's the catch: every building that has four or maybe more commercial units is categorized as commercial real estate.

You may now be wondering why we separate out residential real estate from commercial real estate. The reason for this is, if the property is being purchased as a possible income producing property, then it is looked at differently than whether it is going to be used as a personal resident. The reason for separation is because they each require some additional, specialized skills. For commercial real estate, an agent needs to be able to understand certain investment analyses, such as NOI (Net Operating Income), ROI (Rate of Return), CAP Rate (Capitalization Rate), and also be able to determine if the investment is profitable or not. The investment is not only based on the price of the property, it also includes profitability, whether or not the projected income will be greater than the projected expenses and exactly how long it will take to re-coup the investment.

Alright, I really could hear the question, "Why do we need to know all of this information about commercial real estate?" My answer to this question is; if you want to be that professional that the investor will be looking up to, then you need to be able to help him/her make the deal and feel good about the deal. Remember, without the deal, there is no payday. Additionally, you want that investor to come back to you when he/she wants to invest again and you also want them to provide you with referrals. Usually, you do not see very many commercial properties being advertised in the MLS. Primarily, the MLS has residential properties and commercial properties are advertised on sites such as Loopnet(dot)com and ShowCase(dot)com.

Making an investment in commercial real estate often requires a considerable amount of startup capital and extensive knowledge of the legal, financial and regulatory aspects of owning this type of property. Investors that do not would like to deal with these hassles directly can gain exposure to commercial real estate through real estate investment trusts (REITs).