The primary wealth building property investment type is commercial. This includes office, retail, industrial, and special-purpose. The type you choose or favor may be according to your personality, knowledge, work ethic, previous employment and financial resources. Here is a link to do a property search. Below is information on the property types.
Office Building Property
Like all commercial property various types are in specific areas. For example, an area with small professional office buildings, larger buildings with many stories that would result in more and possibly larger office rooms. Along with single-tenant properties. Office buildings are for service oriented businesses, for example accountants, lawyers, architects, doctors, dentists, etc.
Like all commercial property the main criteria for office property with buildings is income stability. Does the property have reliable tenants for the rental income or can a purchaser use this for their own business type.Office buildings can be classified in categories as follows:
- Class A buildings are considered the best in terms of construction and location.
- Class B might be an average building located in an average location.
- Class C is used to describe below average. The weakness might be smaller units, an older building, or location is a workable, but less desirable area.
- Class D is the lowest rating and could have an area with a high vacancy rate, lack of maintenance and less amenities.
The main criteria for retail property is high traffic with ease of access and ample parking. This property can be large, medium or small. For example large with a shopping center or a large store property with a national tenant. Medium for a strip mall with a few tenants. And small with a single tenant. Shopping centers are multiple retail tenant centers with enough parking inside the center for all businesses. This often includes anchors that in addition to sales for their own business often draw customer traffic to the other shopping center business tenants. Anchors with high business traffic can be national chain stores or large grocery stores.
Large store tenants can be called big-box stores. This is characterized by a large amount of floor space, generally more than 50,000 square feet with the layout resembling a square or rectangle. This is with a national tenant that sells a large amount of items with its location in a suburban area, town or city. These commercial stores can be selling general merchandise or a large variety of items or specialty stores which sell goods in a specific type or range of products, such as hardware, books or consumer electronics. Shopping centers and big-box stores can both require large financial funding. Obviously, a shopping center that included a big-box store as the anchor tenant would require the most financial funding with the highest for sale price.
Strip malls also called a shopping plaza is where the stores are arranged in a row, with a sidewalk in front alongside a street with traffic. This is an investment that does not require as much funding as a shopping center or big-box store, but requires more property analysis. Analysis includes the current tenants, their income, how long they have been in business, how long is their lease agreement. It also should include an analysis of the property neighborhood, with population, income for residences and the automobile traffic of the street of the strip mall. They can be profitable, but this requires property management. The risk is a tenant going out of business with loss of income. This then requires marketing and reinvestment for another tenant.
This property type can be used for product industries where manufacturing of certain product types is done. Some industries are cleaner than others and require less maintenance and clean up. For cleaner industries they could be called business parks, for example, for medical and electronic manufacturing. For less clean they could be called industrial parks. For example for steel or petroleum. This property type could also be used for less complex, but still requiring organization, the storage of goods. These are known as warehouses. Less traffic is needed for industrial property. With less traffic it should mean a lower cost. However, large buildings with high ceilings result in higher square footage as cubic feet. This is calculated by multiplying length, width and height. With more cubic feet there is the possibility of more productive usage for the tenants as more goods could be stored for sale and with building renovation, second stories could be added.
Often the best investments in business or industrial parks can be multi-use buildings that can hold several different business tenants rather than special purpose buildings. The reason is that special purpose buildings are designed to meet the particular needs of the tenant, for example a restaurant or bank. If the tenant has signed a long lease contract this is not a risk. However, if there is a short lease and the tenant decides to leave or vacate, you are faced with finding the same kind of lessee or paying the cost of converting the building to a different use. With a multi-purpose building, or with a safe and secure tenant who has signed onto a long lease, you do not have this higher risk of vacancy with loss of rental revenue.
Undeveloped land can be a good investment if you buy it in the path of progress. This is a land location that is going to expand with new businesses and/or residential homes. If you purchase a favorable property at the right time you could get a higher return on your investment, especially if a major company decides to build on the property you own and then sign a lease to run their business. On the other hand if you guess wrong and can’t find a revenue property usage you would have money tied up in land producing nothing for you as an investor. Perhaps for a long period of time. In the meantime, you must pay property taxes and liability insurance, while having the possible additional expense of keeping the land maintained in an attractive manner for potential investors or renters.
The purchase of raw land could result in the highest property return on investment. However, it could also result in a negative or income loss on investment. This type of investment takes more planning, knowledge and a higher amount of additional revenue either from the original investor or with the addition of an additional investor. Of course, this additional investment is primarily needed for new building construction. Either that or the land needs to be used for farming eventually resulting in the sale of agricultural products.