Types of Commercial Real Estate and Their Benefits
Getting started in commercial real estate can be incredibly beneficial to your financial well-being. Having a clear plan and structure and collaborating with experienced advisors will help you find a smooth path to gaining real estate assets.
Before purchasing, do your research! Mainly, it’s most important to understand the various types of real estate and their benefits. Being knowledgeable in the various types will help you gain the confidence you need to create a diverse asset portfolio and begin your investing journey.
So, what are the different types of commercial real estate you could invest in? Read our round-up of the most notable types and why they could be beneficial to you.
Office
One of the most common types of commercial real estate, office buildings are typically split into three categories based on their location and the quality of the building, as well as the health of the surrounding market. These categories are simply called Class A, Class B, and Class C.
Class A buildings are the highest quality buildings in the best locations. Class B offices are still fairly high-quality buildings, but aren’t in the perfect location, and Class C includes buildings that are fairly old or run-down and aren’t in the best location.
Investing in office space leads to tax benefits and there’s a large supply around the country, so it may be a good starting point for your portfolio.
Industrial
Industrial spaces also come in a variety of shapes, sizes, and purposes. You could invest in a bulk warehouse, which is simply a large space typically used for storage or production but could also be a manufacturing industrial space, which is also quite large but includes machinery as well as storage to produce and store goods.
If you’re interested in a more production-heavy market, industrial spaces would be crucial to add to your investment portfolio. Typically, industrial space rent is lower than other types of commercial real estate, and they have lower overhead costs, in comparison to an office building or retail space.
Retail
Retail spaces rely heavily on foot traffic, so they function a bit differently than other types of commercial real estate. Oftentimes, retail spaces for sale or lease are incorporated into a strip or shopping center, where lots of different retail spaces are in close proximity and have a larger anchor tenant that brings in the majority of customers.
Investing in retail will give you a large return on your investment because the revenue is recurring and there is a low intensity on capital due to common outsourcing.
Mixed-Use
Mixed-use real estate, as its title suggests, usually includes both commercial and residential units. This type of real estate can involve live-work units, where tenants live and work in the same building. For example, you could own a coffee shop on the ground floor of a building and live in the apartment above it.
Mixed-use spaces are currently in high demand due to consumers’ growing interest in walkability and convenience, so they tend to be a low-risk investment.
Land
Land is a fantastic investment opportunity because virtually any type of commercial building can be constructed on it. Land continually increases in value over time, and it can provide you with a lot more financial security in the long run. Because land can generate passive income, it’s in high demand, but that doesn’t mean you should overlook it.
Land by itself increases in value a bit quicker than its built-up counterparts, so that’s yet another reason to invest in it. Overall, it’s a fairly low-risk investment strategy, and when added to your portfolio, it will lower the average risk factor of your combined assets.
As you can see, each type of commercial real estate has its own benefits, and one could be more fitting for your portfolio than another. That’s why it’s important to learn about and be aware of all types to find your best fit.
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