Investing in commercial real estate can help you diversify your holdings and build your fortune. However, you need to understand the basics in order to get started. Here are some of the most frequently asked questions about where to start.
What is commercial real estate?
Commercial real estate is any kind of property that is used for business. Generally, you can invest in office spaces, retail property, industrial buildings and multifamily housing units. There are also special-purpose properties that are designed for specific uses, like amusement parks and hotels.
What's different about owning commercial real estate?
If you own residential property that you use as rentals, you're likely used to one-year leases and month-to-month rents. The leases are relatively straightforward, and your renters have significant protections against financial abuses. Therefore, you have to tread very carefully when you make agreements.
With commercial real estate, it isn't uncommon for the companies that rent such spaces to take out leases for several years at once -- or even a decade. You also have more leeway about the terms of the lease.
What are the risks involved with commercial real estate?
There are always potential risks involved in real estate deals. You have to watch for defects in the title, easements that might encumber the property and make it difficult to rent or resell, liens against the former owner and possible lawsuits.
You also have to be sure that your property will do what you need it to. For example, if you're buying property as an investment and to rent, you want to do your due diligence and make certain that you understand the economic viability of the area, the amount of foot traffic your renters can expect and so on.
If you're thinking about investing in commercial real estate, consider getting some experienced legal advice before you take the plunge.