Selling commercial real estate

The easiest way to define commercial real estate from any other form of real estate is probably just to categorize any form of real estate that is not residential or used for people to live in.

This category of commercial real estate will then include shops or retail investment properties, business premises for any type of commercial business, industrial investment properties such as warehouses or buildings used for storage or manufacturing, so basically any type of property in which the tenants main reason for renting the property would be different to using it as their home to live in.

Selling commercial real estate or investment properties

Many of the rules that apply to selling a residential property also apply to selling commercial real estate.

Selling commercial real estate investment property is a major decision, particularly if you have held the property for a long time, and you have a situation where you have paid off outstanding debt owing on the property and you are now enjoying receiving the rental income without having to pay off the mortgage.

This is a position of positive cash flow and this is the ideal position for any real estate investment so selling your investment properties is a hard decision if it is generating a positive cash flow.

Ultimately this is why your initial planning is so very important, to determine what your overall strategy for making money from this investment is.

If you have a large debt owing on a real estate investment and you see property market values starting to fall as is the case at the moment in 2009 a new decision to selling your investment property becomes a real possibility

The point is like any investment you have to keep abreast of current market conditions, if you have a real estate agent managing your tenants in your investment property.

This could be as easy as asking for a verbal assessment of your investment properties current market value every 6 months or so, hopefully you have a good working relationship with your managing agent and they have access to a helpful salesperson and they are happy to supply you with this type of information.

Selling commercial real estate more to consider

Many consider commercial investment property as a more unpredictable form of investment than residential investment property, and it is advised that more research is done when looking at commercial investment properties then residential investment properties because of a number of factors including.

• Finding a tenant can be harder, there are always people looking for some where to live, business operators who may be suitable for your commercial property may be as easy to find.
• Leases are generally for longer periods, most commercial leases are for minimum of 1-3 years.
• Rental returns are generally higher than the equivalent valued residential property, so although it may be harder to find a tenant in comparison often the rental return is higher.
• Insurance can be higher, the point is if the property is a small shop for example it may be exposed to more risk of vandalism or damage at night while the tenant is not present at the property.
• Commercial property is more expensive than a average residential property, particularly if you are looking at manufacturing or warehouse or industrial property.
• Some commercial property like a old corner store in residential area, or older shop buildings with street frontages can be good investments as there may be potential for further development including incorporating residential development into the site.
• Finance can be a lot harder to get for commercial property investment, banks know there is probably more risk involved so to qualify for a loan on an commercial investment property you will probably need a higher deposit possibly 30% and the interest rate charged on a commercial loan would also probably be higher than that charged for a comparable amount on a residential loan.

The point is commercial investment property does become a bit more of a specialized field of investment.

As with any form of property investment if you are considering commercial property investment we advise you to do plenty of research into all the possible outcomes.