Commercial real estate — comprised of office space, hotels, retail space, industrial property, land and multi-family homes — is one of the three main types of real estate, along with residential and industrial. Owners of commercial real estate, say a gas station or strip mall, make money through appreciation when they sell, but they can also pull in revenue via rent they collect from tenants. (For more, download: Find Fortune in Commercial Real Estate.)
One of the biggest advantages of commercial real estate is the attractive leasing rates. In areas where the amount of new construction is either limited by land or law, commercial real estate can have impressive returns and considerable monthly cash flow.
Acquiring a commercial property typically requires more capital up front than acquiring a residential rental in the same area, so it’s often more difficult to get your foot in the door. Once you’ve acquired a commercial property, you can expect some large capital expenditures to follow. Your property might be humming along for a few months and wham, here comes the bill to address roofing repairs or a new boiler/furnace. With more customers there are more facilities to maintain and therefore more costs. What you hope is that the gains in revenue outweigh the gains in costs, to support purchasing a commercial property over a residential one.
Rules and regulations are the primary deterrent for most people wanting to invest in commercial real estate. The taxes, mechanics of purchase and maintenance responsibilities for commercial properties are buried in layers of legalese that shift according to state, county, industry, size, zoning and many other designations. Most investors in commercial real estate either have specialized knowledge or a payroll of people who do.