How To Buy Commercial Real Estate
for the New Investor - Part I
by Kenneth Armstrong, Real Estate Broker/Attorney
What is commercial property?
There are many types of commercial property. Commercial property could be an existing office building, a movie theater, a restaurant, a bar, a supermarket or any other type of commercially zoned property. In most states, it is the local zoning authority that decides what use can be made of a parcel of real estate.
Some general zoning categories are: residential, commercial and industrial, though there are usually several others and often sub-categories, such as heavy industrial and light industrial, just as there are several categories of residential zoning, such as single-family home, multiple dwelling, and apartment/condominium uses.
Most cities and counties employ what is called “permissive zoning.” Permissive zoning sounds nice and friendly, but it is the most restrictive type of zoning. Permissive zoning means that you may only use the parcel for the uses that the local authority “permits” or allows. Thus, when you are considering buying a parcel of commercial property, be sure that the local authority allows the use that you are intending to make of the property.
Why buy commercial property?
There are several reasons why people buy commercial property. The most common is for its income producing ability. While one can buy residential property that produces income, this is commonly referred to as “income property,” as opposed to commercial property.
People often purchase commercial property to start a business or buy an already existing business along with the real property. While they may love the existing business and look forward to operating it or they may want to start their own new business, it all eventually boils down to generation of income by way of the property.
Another reason why people buy commercial property is because of anticipated appreciation, that is, that they anticipate that the value of the property will increase over time due to market factors. Many have made millions watching a market in an area with which they are familiar and anticipating growth or affluence in a particular area.
Thus, the point of buying commercial property is to make money!