People looking for their first commercial property in Michigan often make the mistake of treating it the same way that they would treat residential real estate. However, commercial real estate often operates differently. In order to maximize your investment, you should understand a few key aspects about commercial real estate that you will not find in the residential property market.
Commercial real estate is divided into classes
A major difference between residential and commercial real estate involves the classification of commercial buildings. The basic categories buildings are divided into are Class A, Class B and Class C.
A building qualifies as Class A if it has these features:
• Newly built
• High-quality build
• Desirable location
• High rental potential
Commercial buildings qualify as Class B if they meet these qualifications:
• Lower quality than Class A
• Can be turned into Class A with extra investment
• Located in good neighborhoods
These qualities may classify a building as Class C:
• Lowest quality buildings
• Built in the 80s or prior
• May be subsidized
• Require extensive renovations
Commercial mortgages differ from residential ones
A commercial mortgage is a loan that allows you to purchase commercial property only. You can use commercial mortgages to develop, refinance or purchase commercial property. A commercial mortgage cannot be used for residential property, and a residential mortgage cannot be used to purchase commercial real estate.
Maintenance costs may run lower on commercial properties
In residential properties, landlords are responsible for maintaining the property. If something breaks, the landlord must fix it. In commercial properties, the leases mostly specify that the tenant takes responsibility for maintaining, improving, and upkeeping the property. They can also be held responsible for property taxes, utilities and insurance.
Commercial real estate can result in major financial growth
Commercial real estate may involve greater financial benefits than residential real estate. Your investments will experience the most success once you have the education and professional understanding needed for the commercial market.