Buying commercial property can be a great way to expand your investment portfolio, but it can be a daunting task to get started. You have to research the different types of commercial property for sale, understand commercial real estate market trends, and know the key differences between commercial property investments and real estate investing.
Consider this article as a way to learn about the best real estate investing opportunities available for commercial properties. Your first step in Commercial Real Estate 101. We’re going to look at some of the different types of commercial property investments you might consider.
Keep in mind that, at the time of this writing (summer of 2020), some of these investment opportunities have been affected by COVID-19.
1. Multi-Family
Apartment buildings and other types of multi-family homes are some of the most highly preferred commercial property investments for a reason. Young people often can’t afford to own, and seniors don’t want to maintain a large home. But while multi-family homes can be a safe investment, they are far from a passive income. High-end renters often demand a high level of maintenance and service, while locations in working-class neighborhoods might struggle to collect rent.
However, COVID-19 has lessened the popularity of multi-family homes among renters. Interests rates are so low right now, that many are purchasing homes to fulfill their dreams of property ownership (not to mention escape those crammed apartment buildings).
Once the pandemic is over, multi-family homes will be a much more profitable opportunity.
2. Mobile Home Parks
Don’t let any preconceived notions keep you from a solid investment opportunity!
Mobile home parks might not sound like a fun or lucrative commercial property investment, but these communities can provide more passive income than multi-family properties. If the tenants own their own mobile homes, then all you need to maintain is often the land and perform some general maintenance.
3. Office Buildings
Office buildings come in many shapes and sizes, from single-tenant facilities to skyscrapers with dozens of occupants. Office buildings can see their commercial property value ebb and flow with the economy. In good times, rents can reach astronomical heights, but the building’s value can drop with the economy.
However, an office building with multiple tenants holding long-term leases will be a safer investment than an office building with a single tenant. And even then, a Triple Net Lease can save the day. A Triple Net Lease, or NNN, is a lease agreement where the tenant promises to pay all of the expenses of the property, including real estate taxes, building insurance, and maintenance.
Before you jump into office space as a commercial investment, however, consider the impact that COVID-19 has had on the working world. Many companies have closed down offices to allow their employees to work from home during the pandemic. For those that remain open and operational, more square footage will likely be a requirement so that co-workers can comply with social distancing guidelines.
4. Co-working space
Co-working spaces are an increasingly popular option, especially in large metro areas. These buildings have been configured to mimic traditional offices. You’ll see conference rooms, assigned cubicles, desk spaces, even small offices. But rather than one company taking over the entire building, you have individuals paying a monthly fee to use the space. These spaces are popular with small businesses, remote workers, and freelancers. This type of office space typically would garner some of the highest price per square foot!
As with typical office spaces, however, you’ll have to consider how COVID-19 has impacted your area. If more people are working from home, there may be less demand for co-working spaces. However, the pandemic may also drive more people to seek an occasional working space outside the home.
If you do decide to invest in a co-working space, make sure it’s set up to comply with social distancing guidelines and have a sanitizing procedure in place.
5. Retail
In a world where more and more commerce is being handled online, it’s wise to do your due diligence before investing in a retail shopping center. We’ve all seen the stories of big iconic malls closing, or large stores closing leaving many malls who are still open hanging by a thread. However, there is still room for brick and mortar retail locations in our modern economy.
More and more are being built (and occupied) every year. Historically, these have been stable investments with most tenants signing long-term contracts. One major issue that you will want to consider is what happens when a major tenant leaves? Overnight you could see a massive percentage of your income disappear!
6. Mixed-Use
Mixed-use buildings are very common (especially in large cities) and can help you combine multiple types of commercial properties into one building. An example of a mixed-use property would be a building with a restaurant on the ground floor, office space on the 2nd floor, and then possibly some residential space above that.
If you’re having trouble deciding between commercial property investments (and don’t want to put all your eggs in one basket) a mixed-use building could be the perfect choice!
7. Industrial Real Estate
Industrial real estate can refer to many different types of buildings, from warehouses to manufacturing facilities, even research facilities. They can be great investments with the right tenants, possibly even allowing you to secure a triple net lease.
However, it can be difficult to properly identify the amount of demand the property might have, leaving you struggling to find tenants. One slice of the Industrial Property that is considered to be a lower risk is flex space. Flex space buildings are usually an industrial space with a warehouse area that is not air-conditioned, combined with an office or showroom space that is air-conditioned. These are desirable spaces for investment, in part because the tenants often are small business owners who pay their rent while keeping their areas clean.
8. Storage Units
While certainly not the most exciting of commercial properties, storage units are absolutely one of the easiest.
Storage units have little in the way of ongoing maintenance. Nobody cares if the walls get scuffed up, or a light is flickering. You don’t have to provide much for your tenants outside of four walls and a roof. And when a tenant moves out, you don’t have to replace the carpet and update the counter tops. When someone moves their stuff out, you can have someone else move their stuff in on the same day. Storage units have also historically been strong in both good and bad economies.
9. Hotels and Resorts
Yes, you can invest in hotels and resorts and help families make memories that will last a lifetime. However, this is much more in line with running a business than just investing in a piece of property. So you might want to consider leasing the space out to a company that would actually run the hotel, rather than try to take that on yourself.
Further, you’ll have to think long and hard about investing in travel during the current global pandemic. Yes, people are still traveling, but you’ll need to ramp up your cleaning procedures throughout the property (and probably reduce occupancy) to make your guests feel safe.
10. Land Development
And finally, we’ve arrived at one of the simplest ideas on the list: buy some land. There’s something powerful about the idea of buying a piece of land and developing it into a valuable piece of property worth far more than you initially paid for it.
But this usually requires a lot of things to go right in order to pull off properly. You usually need to buy the land before the area becomes popular. And you might have to work with local governments to get the property rezoned before you can see its value increase (and working with the government is never a sure thing).
Conclusion
So as you can see, there are multiple types of commercial real estate to invest in! And each type of property will come with its own set of risks and rewards. Understanding more about the type of property you plan to invest in, along with knowing your goals and needs, will go a long way towards making sure you make a wise decision.
And when it’s time for you to either buy a new property or sell an asset you already own, call us here at Building Inspection Services. We can help you ascertain the property’s condition so you avoid costly surprises. BIS is a comprehensive, professional inspection service designed to give you the answers before you buy.
