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A Basic Guide to Buying Commercial Property for Sale

Published: 09-08-21 Category: Investing

Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.

We see two tall commercial property buildings.

This article was updated on 8/07/2023.

A recent thought on every investor's mind, both new and experienced, was how long it would take for commercial real estate investment activity to return to pre-pandemic levels. We now know that question was answered in Q2 2021: global commercial real estate investment volume reached about $247 billion, doubling the amount that was invested the previous year and competing with 2019's levels of investment activity.

Whether you're new or old to the world of commercial real estate investing and have been sitting on the sidelines while the nation enters its post-pandemic economy, now is the right time to jump back in.

Rents are rising across the country as would-be homeowners rethink buying their first home: Builders are struggling to contain the costs of building new single-family homes, the median price of newly built single-family homes is rising, and mortgage applications to purchase a newly built home are dropping (they fell almost 24% from June 2021 compared to June 2020).

So far, the picture hasn't changed much in 2023: Mortgage applications are now at a 28-year low, inflation continues to hurt discretionary spending, home values are back on the rise, and interest rates are spiking.

And, while 2023's increased borrowing costs have hampered commercial real estate investment activity, there are still profitable deals to be found, most especially within the industrial real estate sector.

Here's a basic guide to buying commercial property for sale.

What Is Commercial Property?

A “commercial property” is usually a piece of real estate that gives a business a place to live, but it can also refer to a plot of commercial land used to generate income or a large residential building, such as an apartment building.

The different types of commercial property for sale you might find include office spaces, malls, industrial buildings, warehouses, retail storefronts, and more. Investing in commercial real estate has historically provided sound investment opportunities to investors looking to diversify portfolios.

Is Commercial Property for Sale Worth Buying?

Historically and overall, buying commercial property for sale is a smart investment. Commercial property types often involve more flexible lease terms, more reliable tenants, and higher returns on investments through either income (what's also known as building operation) or the appreciation of the property's value over time.

However, it's worth mentioning the importance of doing business through a seasoned professional. Opt for handling everything yourself and, if you're new to buying commercial property for sale, your commercial real estate journey will be short-lived. Locate and talk to a few experienced commercial real estate brokers and attorneys. These professionals will help you negotiate deals and even save you money.

If you're a commercial real estate broker, you can list commercial properties for sale or for lease for free on MyEListing.com; investors can browse properties for free as well.

How Do Commercial Property Owners Make Money?

Commercial property owners make money in one of two ways:

Building operations: Generates income for the commercial property owner through commercial tenants paying rent; and
Commercial property value: The value of a commercial property may appreciate, or increase, over time. The commercial property owner may then sell for more than they purchased.

Since commercial real estate properties are often leased by businesses, rent payments tend to be higher, and lease terms tend to be longer. If you single-handedly purchase a commercial property for sale, you'll receive the rental income; however, if you decide to invest in commercial real estate through a fund, you'll receive your payout in the form of a dividend.

Real estate investment funds provide greater investment access to non-accredited investors who don't have the capital required to work directly through a broker; in other words, you can invest a much smaller amount in a commercial property for sale through a fund, but you'd be sharing the investment with others and, as a result, the returns.

Benefits of Buying Commercial Property for Sale

Besides the income potential and property appreciation, there are other benefits to purchasing commercial property for sale.

Building your network: Because most commercial tenants are businesses, the relationship between a commercial property owner and their tenants is that of a client-to-customer relationship. Unlike the interactions you may encounter between a landlord and their residential tenants, engagements between owners and tenants in the commercial real estate world tend to be far more professional and courteous, with both parties often looking out for each other.
Common interests: Commercial tenants need to keep up with a positive public perception of their business, most especially in the world of retail. This often drives the commercial property owner to maintain and improve the quality of their property so their tenants may appreciate them as the owner and, as a result, continue to pay rent.
Normal hours of operation: As a residential property owner, you very well may receive calls from your tenants in the middle of the night about a lost key or a broken window. Commercial tenants, however, do business during normal business hours and usually go home at night. Barring any type of emergency call for a break-in or fire alarm, you shouldn't be bothered outside regular operations.
Flexible commercial lease terms: You don't have as many consumer protection laws governing commercial real estate lease terms as you do residential, meaning you won't deal with as many limits on security deposits or termination rules.