Commercial Real estate as defined, refers to buildings or land that is used to generate profit either from capital gain or income from rental.
Types of Commercial Real Estate
- Office Buildings – This type of commercial real estate produces large profits. Office tenants usually sign longer leases. This mean that there a potential income that can be expected for a longer period of time. However, when it becomes vacant, it takes longer to find tenants. Thus, there is longer period of time when no income can be received from the office space. Some office buildings include the business parks and towers, skyscrapers and small professional office buildings.
- Retailer Stores – These are commercial buildings with tenants who do business in buy and sell. This includes shopping centers and malls, grocery stores and outlet malls. Some commercial real estate are privately owned by big companies and corporations and the lease out spaces for small businessmen to do business within their building.
- Restaurants – This kind of commercial real estate do business providing food and coffee drinks for their customers. They requires bigger space for tables and chairs and a section for preparing and cooking the food.
- Hospitals – They are considered commercial real estate because they do business treating patients and gain profit.
- Warehouse and Storage – These commercial real estate is intended for storing products while there are still stocks in the retailer store. Some warehouses are used to dispatch orders to customers. Other storage buildings are large freezers to keep products fresh and prevent spoiling.
- Vacant lands – These are potential sources of income and profit when they will be developed for commercial purposes.
Elements of an Investment in Commercial Real Estate
- Cash inflows – is money received from the property. This includes rent, operating expenses recovery, fees, proceeds from sale, tax benefits, depreciation and tax credits.
- Cash Outflow – is money put into the estate, such as initial investment, operating expenses and taxes, capital expenses and tenant leasing cost and cost upon sale.
- Timing of cash flows – It is important to determine when cash inflows and outflows happens so that they can be predicted. The amount of cash inflows and outflows must also be predicted to determine success.
- Risk – This is dependent on the condition of the market, the tenants currently occupying the building and the possibility of them renewing their leases every year.