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 you can find those who have some misunderstanding about what is included in the buying and selling of commercial properties. see our webpage
For the sake of this article, I am going to see how Investopedia.com defines commercial real estate. Investopedia.com says that commercial property is "Property that can be used solely for business purposes." This means that the property can be used as income producing; it is not to be used primarily as the buyer's resident. A few examples of commercial properties include: shopping centers, office buildings, retail buildings, multifamily properties (apartment buildings), vacant developable land, etc.
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 if it will 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.
If you buy a house with the only purpose to generate money off it, you can file it under commercial real estate, even if it is not a shopping center, warehouse, manufacturing unit or rental apartment's complexes, which can be definitely commercial. It is important to classify a property because there are different rules that apply to each category. The most important one is the mortgage and the rules you need to comply when you have to qualify for this loan. When you ask for a personal mortgage the final reply is influenced by your income, while commercial mortgage depends on the income your property can produce. When it comes to taxes, there are also different rules and when you file for bankruptcy, commercial properties receive different treatment, when compared with residential properties. Before you take the decision on investing in commercial real estate you have to know what benefits you can reap from this transaction.