Commercial Real Estate: Specialist Necessary

harkins  /   November 14, 2011

If you are considering choosing a real estate advisor, it is a good idea to first consider the differences between residential and commercial investment real estate. Both disciplines require perseverance, drive and market knowledge. Both have their own subsets. However, and most importantly, there are major differences to consider.

A friend once asked for an explanation for the difference between residential and commercial real estate. The simple answer is… if the buyer plans to live and sleep in the property, it is most likely a residential transaction!

In Florida, as in most states, the definition of a residential transaction is up to four units. It is an important distinction beacuse of the special laws, regulations, and extensive consumer protections provided for the small, presumably, less sophisticated investor.

The commercial buyer, on the other hand, despite the humbling performance many investors have had in the past few years, is considered to be a more sophisticated investor, able to employ a higher level of analysis, investigation and due diligence than the residential home buyer.

If you are considering choosing a real estate advisor, it is a good idea to first consider the differences between residential and commercial investment real estate. Both disciplines require perseverance, drive and market knowledge. Both have their own subsets. However, and most importantly, there are major differences to consider.

A friend once asked for an explanation for the difference between residential and commercial real estate. The simple answer is… if the buyer plans to live and sleep in the property, it is most likely a residential transaction!

The commercial buyer, on the other hand, despite the humbling performance many investors have had in the past few years, is considered to be a more sophisticated investor, able to employ a higher level of analysis, investigation and due diligence than the residential home buyer.

Commercial transactions come in many forms and may involve buying, selling or leasing, frequently utilizing more complex financing techniques. Broad categories of commercial real estate include office, retail, restaurants, hospitality, medical, governmental, raw land, industrial, manufacturing, distribution, warehousing and multi-family properties in excess of four units. Each of these areas has its own vocabulary and teams of experts that work within the various frameworks.

Leverage is a driving force behind most commercial real estate transactions. Investors set their own goals and a frequent objective is to minimize cash investment and maximize returns. Commercial investors frequently rely on analytical results such as return on investment (ROI), capitalization rate (Cap Rate), net operating income (NOI), and financing options.

In today’s complex market there are many areas of specialization within both commercial and residential real estate. It is probably in your best interest to retain an appropriate specialist for your particular real estate requirement.

There’s an old saying, “Even a blind squirrel can find an acorn now and then.” However, it is a wise person who places their real estate future in the hands of a qualified advisor.

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