About Commercial Rental Property

Commercial rental property is a very wise investment for aspiring business owners or for people who are looking for a place to invest their retirement, annuity or lottery winnings.
Function
The function of commercial rentals is to make money from businesses. Commercial leasers tend to work more often with business owners that want to run their businesses on a commercial level. The primary goal of commercial renters is, of course, to make enough money. The money they make from renting these properties is often used to pay for the high-priced mortgages that are associated with owning these types of rental property.
Types
There are many different types of commercial rental property including: office buildings, retail stores, warehouses, convenience stores and shopping malls to name a few. Office buildings, retail stores and some warehouses tend to have a higher price tag attached to them than convenience stores and other types of small scale commercial property. Other types of commercial properties include: commercial land (for which you can build your own commercial building) and stadiums..
Benefits
The benefits of owning a commercial rental property range in depth from huge profits to the possibility of expansion. In the beginning, the main focus of your commercial property should be benificial gain. If you are just starting out in the commercial rental profession, you need to know how to make your profit. For example, if your property mortgages for $1100.00 per month, it would be beneficial for you to market the rent for your property $400 to $500 higher than the mortgage you pay. This will help you make a decent profit. Once you have enough money saved, expanding your gig would be the best thing you could do for yourself.
Potential
Any type of real estate investment (if planned correctly) can have flourishing potential. You can have very big income potential if you operate by yourself. For example, If you charge $1100.00 per month for rent and you own 3 commercial rental properties (also $1100.00 per month) thats an annual income of almost $40,000.00 ($39,600.00 to be exact). You could possibly retire on that.
Warning
Beware of current economic forecasts. If you try to buy 3 or 4 investment properties when the market forecasts aren't looking so good, you may struggle to get renters or you will forced to file bankruptcy or sell your property. If you are going to invest in commercial properties, you are encouraged to wait until you have saved enough to buy the commercial rental property out-right.

How to Live in Commercial Property

People who live on commercial property are usually seeking to save money by allowing their business location to double as their home. Unfortunately, this decision could end up costing you if county zoning laws do not allow for your business location to double as a residential property. If this is the case, you could be evicted, fined and taken to court. Even if it is legal for you to live at your business, you must still make sure that your living space is safe.

Instructions
Check your county's zoning laws. You may be able to do this on your own by visiting the county clerk. Alternatively, consider hiring a lawyer to help you with this process.
Create a safe space on your property that is separate from the commercial activities of your company. If living and working in an office typesetting, clear a backroom with a window for escaping fire and set up a futon, television, microwave and small refrigerator. If living in a warehouse setting, consider constructing an apartment within the warehouse space. However, be sure to obtain a permit for completing this project.
Develop a plan for keeping your residential life separate from your working life. Otherwise, you may find that you spend every moment working or that, since you are always home, you lack the motivation to get to work. Establishing a set schedule will help you overcome these problems.

Tips & Warnings
• Another alternative is to consider parking a camper on your property and living in the camper. Again, consult a real estate lawyer or county clerk to ensure that you are legally able to bring the camper onto your property.

How to Find Cheap Commercial Real Estate Properties

In the wake of the worldwide commercial real estate slump, few properties are as expensive as they used to be. Some might even be considered "cheap" and thus a good opportunity to make money in the short- and longer-term. But even in hard times, investors looking for commercial property deals need to plan carefully and understand what they are getting into, because a bad property is no bargain even if it's cheap. Successful commercial property acquisition is both complicated and time-consuming and professional help is essential for inexperienced commercial property investors.

Instructions
Understand what "cheap" means in a commercial real estate context. Commercial properties are assets whose value is closely linked to how much income they can be expected to produce, usually in the form of rents from tenants. A property is "cheap" only if its projected income stream will exceed by a significant margin the cost of acquiring it plus the cost of operating it.
Narrow your focus. Commercial real estate actually refers to several main types of property, all with widely different business models, including office, industrial, retail, hotels and apartment properties. No one, not even the most seasoned real estate pro, is an expert in every property type or even more than one or two.

Establish relationships with the professionals whose help you will need to find and acquire cheap commercial property. A good commercial real estate broker will not only know his or her particular market in detail but also most of the potential sellers in the area. A skillful real estate lawyer will understand the ins and outs of structuring the deal.
Look for properties on the market whose owners might have a reason to sell them at a discount. Inspect them carefully and try to determine why they are on the market. Some older property owners look to liquidate their assets as a form of estate planning. In other situations, owners are having a difficult time making payments on their loans and are willing to sell to cut their losses. Also, there is now a sizable number of foreclosed commercial properties coming on the market. Many of them will ultimately be sold at steep discounts by the lender who has taken possession of them.
Arrange your financing. It's quite difficult to borrow money to buy commercial real estate these days and to do so you must prove to a lender that the property you want to buy will provide enough income for you to keep current on the loan. In the case of buying foreclosed properties, you often will need cash to do the deal. That saves you the trouble of finding a lender but it also puts all of your equity at risk if the investment isn't as good as you thought.
Negotiate a price. All pricing in commercial real estate is negotiable, except when the property is traded by auction. Do your math beforehand to determine how high you can reasonably go and still make money from the building once you are its owner.

Tips & Warnings
• Land has a tendency to increase in value as time goes by but, with certain exceptions, commercial buildings often lose value over the decades as they become obsolete.
• If you're buying property for your business, look into the possibility of a Small Business Administration-backed (SBA) loan.
• Building valuation is often expressed as a capitalization (cap) rate. Cap rate is the ratio of income to sales price (your capital investment).

How to Evaluate Commercial Property

Commercial real estate is property leased to business owners rather than residential families. The initial investment on commercial property is often high, but the returns can be far greater than residential real estate. An investor must evaluate the property based upon location, economy, and the risk of repairs versus the possible lease amount.Does this Spark an idea?

Instructions
Contact a real estate broker and determine the best locations to scout commercial real estate. Select a location with few vacancies and a good balance between residential structures and major shipping lanes such as highways.
Hire a contractor to examine the property inside and out, making note of any damage that needs repairs. Tally the list against what the broker believes you could get from leasing the property to a business owner.
Invest your personal time in the area, monitoring the local businesses to see how they are performing. Make the commute from residential areas to the commercial district to determine if the property is easily accessible. Weigh these findings in your decision to purchase the property.
Consult with your broker and determine a threshold price that you are willing to pay but not exceed, keeping any repairs in mind. Arrange a meeting with the seller and attempt to purchase the property below your threshold.

Tips & Warnings
• The best way to know if a commercial property will perform well is to evaluate the businesses nearby.
• Always have someone check the property for asbestos or lead paint.

How to Buy Commercial Property

f you are considering buying commercial property, you might have a large amount of your income at stake. You might want to buy an office or other building for your current business, rather than continuing to pay rent for a space. Or perhaps you want to strike out on a new business venture and want to purchase property to start out on. You may also wish to buy property that you can then rent or lease out, such as apartments. No matter the reason, you have many factors to take in while making this weighty decision.

Instructions
Take stock. You need to know how much cash you have available to put down on a piece of commercial property. This will help you determine your budget for the property. Typically you will need to have at least 20 percent of the sale price on hand to put as your down payment.
Give yourself plenty of time. Even if you have a wad of cash in your pocket and the perfect place already picked out, the process can take time. With commercial property there are many factors to consider in the negotiation process, such as appraisals, safety codes, environmental issues and more. This process can take up to a year or more.
Find a real estate broker or agent. A professional will be able to help you search out the perfect piece of property, as well as walk you through all of the ins and outs of the process. Talk to other business owners that you trust and respect, and ask them for recommendations.
Take time to pick the right piece of property for your business needs. Consider how much time and money you want to put into the initial fix up or changes as well as day-to-day upkeep. Think about how many employees you have, and determine how many bathrooms you will require and whether you need some sort of kitchen. Find out about average utility and other monthly, quarterly or annual bills you will encounter.
Have the property inspected and appraised before you make any type of offer or deal. Find out about past repairs and problems, and whether any type of warranty will be made available. This is a major investment, so you really need to protect yourself.

Tips & Warnings
• Consider pooling your money with someone needing similar space and sharing the property. This might allow you more or better property.
• Take into account any laws or regulations for your type of business. For example, if you wanted to open an elder care home, would you need to install a sprinkler system? Forgetting to factor in these costs could get you in over your head.

How to Buy a Foreclosed Commercial Property From a Security Broker

Foreclosed commercial mortgages can be purchased from many specialized securities brokers without special requirements. Once you purchase the security, you'll have to take over collection procedures yourself to either attempt to restore the mortgage to solvency or proceed with eviction and full acquisition of the commercial property. Commercial mortgage backed securities (CMBS) are an actively traded market with a relatively high level of risk that offers opportunities to commercial real estate investors and speculators alike.
Instructions

Find a securities broker specializing in the trade of individual mortgages, both commercial and residential. Many mortgages are repackaged by lenders into mortgage-backed securities which are too large to be managed by individual investors. Individual mortgage notes are bought and sold on a smaller market geared to individual investors and businesses by specialized brokers. These are private markets that aren't typically publicly advertised.
Purchase a foreclosed commercial property from a broker that gives you access to broader mortgage markets. You will not necessarily need to use a traditional broker. There are brokerage firms that offer mortgage trading platforms for individual investors to meet banks and other lenders looking to sell these distressed securities, such as TradeWeb. These securities will be available for purchase for much less than the total amount of the mortgage because it's already in default. You will either have to trade the security, collect on the mortgage or proceed with the foreclosure process yourself.
Contact the current mortgagor of the commercial property. If the tenant of the property is current with their rent, you will not need to proceed with eviction against them. Attempt to create a repayment plan with the mortgagor taking into account their financial situation. You can renegotiate any previous agreements made by the previous owner of the mortgage with the current mortgagor.
Initiate the foreclosure process if the mortgagor is not able to come to an agreement with you. In most cases, you will end up with sole possession of the commercial property. You will gain responsibility for any tenants still using the property that are abiding by the terms of their lease.

How to Lease Commercial Properties

Leasing a commercial property is one way to give your business permanence and stability. But a commercial lease places most of the financial responsibility for leasehold improvements on the renter, rather than the landlord. It's important to thoroughly research a commercial property before you sign a lease, to determine whether you have a reasonable chance of paying back the cost of leasehold improvements over the course of the lease term.

Instructions
Research whether the commercial space you're considering is zoned for your specific type of business activity. In most municipalities, commercial property must be zoned for general commercial use, but specific types of commercial activity such as restaurants, bars and manufacturing have special zoning requirements as well. You can find zoning maps online through your town or city's website, or you can visit your municipal zoning office to obtain the information you need. Some municipalities allow you to apply for a change of use if the property isn't already appropriately zoned. Make sure that this is possible, before you commit to a commercial lease.
Work with contractors to develop a realistic estimate of the cost of improvements you'll need to prepare the commercial space for the type of use it will receive. Include the cost of plumbing, electrical work, ventilation, and any changes to the layout, such as adding or removing walls. Also calculate the cost of signs, paint, flooring or rugs, and licenses or permits. Add the amount that you'll pay in rent while completing your leasehold improvements.

Calculate the volume of business you'll need to transact to cover the cost of the leasehold improvements. Negotiate with the landlord, to determine if he's willing to extend a lease with a long enough term for you to make back the money you'll need to invest. Also, check with your prospective landlord to see if he's open to you using the space for the purpose you intend, and if he'd be willing to offer you a rent reduction while you complete your improvements.

Review the commercial lease your landlord offers you. Most commercial leases are fairly standard, but it's still important to understand the terms. Ask to include provisions for special circumstances you might encounter -- for example, you might not use your commercial space full time, and might ask to sublet it to another business during off hours.

How to Calculate Commercial Property Insurance Payments

Your business has a commercial insurance policy for a reason. You have invested a lot of time and money into your business and want to make sure that your investment is protected in the event of a fire or other common cause of loss. If you must ever file a commercial property insurance claim, you should be able to calculate the approximate settlement value to expect from the insurer. Though the math is easy, there is often confusion as to how to apply the policy deductible and the maximum amount of money you are entitled to.

Instructions
Read your commercial property insurance policy to determine the maximum benefit and the appropriate deductible. Example: Your inventory was burned in a fire. Your inventory coverage maximum benefit is $100,000. Your deductible is $500.
Determine the value of your damaged property. Methods of doing this will vary by the type of property that was damaged.
Subtract your deductible from the total value of the damaged property. Using the above example, if the value minus deductible is less than $100,000, you should receive that amount. If the value minus deductible is greater than $100,000, you will receive only the maximum policy benefit of $100,000.

Tips & Warnings
• Remember that the deductible applies to the property value, not the policy limit. If the total damage in the above example was $100,499, then the value minus deductible would be $99,999, and you should receive that entire amount. If the deductible were applied to the policy limit, then the maximum benefit you would receive under any circumstances would be $99,500. This is not legal, according to the lawyers at the Merlin law group.
• Your insurance company may have methods of reducing costs that are not available to you. You may calculate your damaged property value at $50,000, but the insurer might be able to replace the same property for only $45,000, thus reducing your expected benefit. You are entitled to a settlement equal to the least expensive method of accurately valuing your property. Therefore, your settlement calculation may be different than the insurance company's.

How to Assess Commercial Property

The process of thoroughly assessing commercial property is a detailed and potentially lengthy process. However, correctly assessing commercial property is important to determine what the land or the land with a building on it is worth. Commercial property assessments should be done yearly so the current worth of the entire property is known for business investment purposes as well as real estate options. A business or land owner must calculate the property's value before deciding on the selling price so the property can be listed appropriately.

Instructions
Calculate the commercial property's value before comparing it to a professional assessor's findings. The Real Estate Investment website real-estate-investment.net recommends checking with a local bank or real estate agent to determine what current market values are in the area. It is also important to obtain a list of the criteria used to determine commercial property value.
Review the factors used to determine the value of a commercial property. According to the website Commercial Building Inspections, market conditions, property location, area development and anticipated area development all contribute to the outcome of the commercial property assessment.

Include the necessary figures if the commercial property produces income. Access the total business or land earnings from the previous year and include the total into the land or business value. The Commercial Building Inspections website explains that a buyer who purchases commercial property based on its income value is choosing to buy the property partially based on its future income potential.

Visit the ASTM International website to purchase a copy of the Standard Guide for Property Condition Assessments. Understanding the conditions that are observed when making a property assessment will help with the commercial property assessment calculation process. Combine all of the assessment figures in order to determine a rough estimate of the property's value.

Compare the individual assessment of the property with the official assessment that was produced by a professional property assessor. It is important that a land or business owner be aware of the property's value so a reasonable sales price can be reached. It is also beneficial to know the commercial property value when the owner is considering offers.

How to Calculate Depreciation on a Commercial Property

Depreciating investment property can be a significant tax benefit. Depreciating commercial property is different than depreciating residential property, and these differences can be used to take full advantage of the tax benefit.

Instructions
1.Straight Line Depreciation
Calculate the total cost basis of the commercial property you are depreciating.
Divide the total value by 39 to get your annual depreciation on a straight line basis.
Apply the depreciation to your taxes annually for at least 39 years until the property has been fully depreciated.

2.Cost Segregation Depreciation of Commercial Property
Separate the commercial property asset using an engineering report into four separate categories: personal property, land improvements, the building and land.
Depreciate the amounts allocated to personal property over five to seven years using a double declining method.
Depreciate the amount allocated to land improvements over 15 years using an accelerated method, such as the 150% declining balance method.
Depreciate the components of the building separately to take advantage of different tax benefits. For example, although the roof is part of the building, you may be able to depreciate it more quickly separately.
Allocate the remaining amount to the land catagory.

Tips & Warnings
• Do not under any circumstances attempt to do this without the assistance and direction of qualified tax, accounting and engineering professionals.

How to Calculate Condominium Depreciation

Investors may choose homes, land, apartments, commercial buildings and more as real estate investments. Investors must depreciate rental properties, according to Internal Revenue Service. Depreciation helps investors maintain an investment property without spending more cash. Depreciation offsets use, age and obsolescence of an investment property. Condominium investments offer 100-percent depreciation potential. Condominiums don't include land value. Land can't be depreciated. Residential income property may be depreciated over a 27.5-year useful life on a straight-line basis.
Instructions

Use depreciation to reduce the costs basis of your condominium investment. Depreciation is an accounting method used to calculate the decline of an asset's value over its useful life. The Internal Revenue Service allows depreciation as an expense against taxable net income. Only income-producing real estate properties may be depreciated. Depreciation theoretically encourages investment in the real estate asset, according to "West's Encyclopedia of American Law."
Calculate net profit or loss on a rental condominium by subtracting deductible expenses, including depreciation, from income. Expenses include operating expenses, mortgage interest and depreciation.
Let's say you purchase a $200,000 condominium. To calculate the annual depreciation amount, divide $200,000 by 27.5 years. The result, $7,272, is added to other expenses -- operating expenses and mortgage interest -- and subtracted from net taxable income. If the condominium has net expenses of $25,000 and rental income of $16,000, a net loss of $9,000 results.
The condominium's value shows a loss on paper even if the condominium may be appreciating in value in the real estate market.
Continue to subtract the annual depreciation figure from the condominium's cost basis each year. Unlike some deductions, taking depreciation against a rental property isn't optional, according to "Every Landlord's Tax Deduction Guide" by Stephen Fishman in 2010. Failing to depreciate the property will cost money in the future. The IRS adds depreciation back to the cost basis when you sell the property.
Talk to your accountant about the computation of depreciation and allowable expenses against rental income. Author Stephen Fishman encourages landlords to take a hands-on approach in calculating real estate depreciation. Understanding the value of depreciation can assist an investor in making real estate acquisition decisions.
Understand the tax impact of depreciation recapture before selling a property. Say you've held a condominium purchased some years ago $100,000. Depreciation of $40,000 over time lowers the cost basis to $60,000. Selling the property nets $130,000, or $70,000 above the depreciation-adjusted cost basis rather than the original $100,000 purchase price, according to "New York Real Estate For Brokers" by Marcia Darvin Spada in 2008

Tips & Warnings
• Insure your condo investments against fire and other hazardous events.
• The condo you call home can't be depreciated.