What is an investment commercial property? Kent Property Witness offer RICS expert witness surveyor services for Tonbridge and Kent. Find out more about the difference between commercial and residential property and how to buy commercial property.

What Is Investment Commercial Property?

Investment commercial property refers to a business-related rent property that offers a stable workspace for employers and employees or exists for hospitality instead of residential real estate, which constitutes a living space. Commercial real estate is an investment owners lease to prospective tenants to conduct activities and plans that are more rental income-generating.

Doing so is beneficial for both parties. It is a relatively broad rental real estate category, including a wide range of storefront properties to more extensive shopping malls and retail centres. Commercial real estate involves a wide range of categories: hotels, holiday and weekend resorts, strip malls, office spaces or blocks, healthcare facilities, canteens, and restaurants. 

Investing in Commercial Property vs Residential Property

Commercial property is often perceived as a traditional sound investment for business purposes. The costs of tenants customisation and the initial investment costs for your chosen building tend to be much higher than the costs of any residential real estate.

However, any overall returns you receive for higher. There are a few prevalent headaches and costly legal issues that require lawyers or developments associated with residential tenants that you often won't experience with straightforward leases and companies.

HOW DO YOU CALCULATE THE VALUE OF A COMMERCIAL PROPERTY?

Residential property investors must look at a wide range of factors involving the overall emotional appeal of the household property concerning potential future tenants. It would be best to consider the target audience and the types of people who may desire the home you are renting out for hire.

In contrast, investors of commercial properties can entirely rely on net income statements that accurately display the value of any current leases and rules involved. You can then compare this value against the capitalisation rate of various other similar properties within that location. 

Types Of Commercial Property

There are various commercial properties across numerous industries; we pass by or live beside a whole host of commercial features in our everyday lives. Owning them is an enormous responsibility compared to a simple residence income property. 

Commercial real estate is often divided into five specific categories, including:

Land

Land often involves the financing and investment of undeveloped, rural or raw land for sale that owners will eventually utilise for future development concerning a wide variety of potential properties. Its intended use may also concern infill land with inner cities and towns, pad sites, etc. Such forms of ownership require planning permission before your building project can go ahead.

Multi-Family

The multi-family category often includes high-rise apartment buildings or various apartment complexes. Any block or physical property more prominent than a fourplex building tends to be considered commercial real estate. 

Miscellaneous

This category considers various non-residential properties, for example, hospitality facilities, medical centres or clinics, hotels, numerous self-storage developments, along with many more.

Rental Property as a Business

Owning a rental property can often qualify you as a business, but only if you continuously spend and work on household management to earn a profit from the monthly rent.

The IRS states that are several factors that must be relevant to your rental property method for it to be considered a business; these factors include:

Under these tests, the IRS and courts have frequently found that most landlords in the industry are not legally required to own too much property or do a wide range of related work to qualify as a business. There aren't specific numbers of properties or units that you should be renting out to be eligible as a landlord or as a rental business.

Rental Property as Investment

Rental ownership is considered an investment compared to a business. You're still actively earning a profit; however, it's not your full-time job that you're consistently working on with the assistance of agents, managers or employees.

Some may find this a challenging concept to grasp, so we'll provide an example:

"Edgar Grier inherited a home owned by his mother that she had rented for numerous years to the same tenant. That tenant occupied the property, living there for an extended period until Grier decided to sell it around 14 years later. Grier managed the investment property over the years, often with the help of a trustworthy agent but primarily by himself.

The house required very little management; however, it wasn't up to Grier to care for each maintenance aspect, such as replacing the furnace or other details. 

The court of law and IRS found that Grier treated the house as more of an investment than a Business, renting the home out to tenants, but it was not his responsibility to micro-manage the maintenance or appearance.

The courts and law firms noted that Grier's investment house was the only rental property he had ever owned. They concluded that Grier's landlord activities were far too minimal for the single rental to be considered a business or even rise to that level."

Typically, those with rental property businesses have a few more properties to take care of and manage compared to one or two.

Finally, those who buy interests in business entities owning plenty of real estate yet do not have any involvement in the overall management of those properties are also considered investors purely for tax benefits and purposes.

Purchasing interests may include people who own several shares of Real Estate Investment Trusts (REITs) and corporations alongside those of limited partners in partnerships owning real estate.