Precisely What Is 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 you can find those who have some misunderstanding about what is included in the buying and selling of commercial properties. mobile homes for sale clayton

The first thing you want to know is what type 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 a lot 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 how about a building which has five shops and five living apartments? Here's the catch: every building that has four or 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 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 make money off it, you could 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, in comparison 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.