Commercial properties are defined as real estate that isn’t residential or any establishment with less than five families living in the building. This means that apartment complexes are classified as commercial property (or mixed-use property), along with office buildings, hotels, restaurants, and shopping malls.
Compared to residential real estate, commercial real estate tends to be more profitable because you have more tenants occupying the building. You also tend to have professional businesses occupying space on the property, which means they’re more likely to pay their rent and sign longer leases. The downside is that commercial real estate tends to cost more than residential real estate, so here are the types of commercial properties that usually are the most profitable.
#1: Triple Net Commercial Properties
Commercial properties with triple net leases (NNN), though they’re typically single tenant properties, the tenants pay a set (and usually lower priced) amount for rent and also part of the landlord’s real estate taxes, part of the building insurance, and part of the maintenance fees. Basically, most of the responsibility is placed on the tenant rather than the landlord (you). This type of commercial property also allows you to have more flexibility and freedom from traditional landlord responsibilities because your tenant(s) will be in charge of the majority of the property. Almost any type of commercial property can use a triple net lease, but they’re most commonly used for freestanding commercial buildings. There’s also such a thing as a double net lease (NN), where the tenant is only responsible for two of the three fees.
#2: Commercial Properties in a Prime Location
With any type of property in real estate, the location of your property will let you know if it is going to be profitable or not. For example, when it comes to residential properties (single-family homes, duplexes, and quadruplexes), some of the things that let you know the property is in a good area is if there’s a good school district nearby and if there are jobs available in that area. When it comes to vacation rental properties, the most profitable properties are located in an area that sees a lot of tourists year round. As for commercial properties, high-traffic areas are the best location to look for commercial properties up for sale. High-traffic areas attract new tenants because they know that that location is a prime spot for good business.
#3: Commercial Properties That House a Lot of Tenants
Overall, you’ll likely see the highest return on your investment if you invest in a rental property that houses a large number of tenants. This includes apartment complexes, student housing, RV parks, and even large office buildings. However, it’s important to note that the more tenants you have, the more likely you are to have people who don’t pay their rent, so keep this in mind when investing in properties like apartment complexes. Instead, try to focus on commercial properties where the tenants are more likely to pay their rent, such as office buildings and even student housing. Also, there are commercial property loans available to help you finance all different types of commercial real estate.
The best type of commercial property to invest in largely depends on where you are in your real estate investment and which type of property seems the most profitable in your area. Just make sure that: your property is in a location that will attract a lot of trustworth tenants, whether it’s an apartment complex or a place of business; your property can house a large number of (trustworthy) tenants; or that you’ll be able to have your tenant(s) sign either a triple net lease or a double net lease. Keep in mind that while a triple/double net lease offers more advantages to you as a landlord, the rent is lower for the tenant(s) occupying the property.