There are three types of properties — residential for housing people, commercial and industrial for supporting businesses.
What is a commercial property?
Immovable properties used for running businesses are known as commercial property. These are also known as income properties or investment properties. These are buildings or lands intended to make profits through capital gain or rental income. Commercial properties include the followings:
- Office buildings
- Medical centres
- Hotels
- Malls
- Retail stores
- Multi-family housing buildings
- Farm land
- Warehouses
- Garages
A commercial property has implications with respect to finances, tax, and laws.
A commercial property covers shopping centres, office buildings, manufacturing units, etc.
See also: All about commercial sublease agreement
Commercial property as an investment
- These are considered as one of the safest investment options.
- Investment and maintenance costs of commercial properties are high, however, the returns earned by commercial properties are higher.
- These come with leases that are simple.
- Property tax for commercial properties is more than that of residential property.
Types of commercial property
Office buildings: These are single tenant office units, small professional office set-ups, etc.
Retail shops: These include retail shops, supermarkets, restaurants located in buildings on highway frontages, single tenant retail buildings, inline multi-tenant retail, small neighbourhood shopping centres, etc.
Land: These have commercial investment properties on rural raw land.
Industrial: These have the presence of warehouses, manufacturing departments, industries, cold storage, research and development facilities, etc.
Commercial property investments through REITs
Property buyers who are interested in investing in commercial properties but don’t have money to buy the entire unit can invest in commercial real estate in portions through real estate investment trusts (REITs).
Cash inflow with respect to commercial property
- Rent
- Operating expense recoveries
- Service fees: Parking, vending, services
- Sale proceeds
- Tax benefits
- Depreciation
- Tax credits
Cash outflow with respect to commercial property
- Down payments
- Operating expenses
- Property tax and other taxes
- Mortgage payment
- Costs upon sale
- Tenant leasing costs
Note, one should study the commercial property market so that the investment timing is low on risk resulting in positive cash inflows and negative cash outflows.
FAQs
What commands more property tax – commercial or residential property?
While property tax is calculated based on the area, commercial properties command more property tax.
What is the tax deduction for commercial properties?
For commercial properties, deductions can be done in two ways -- standard property and deduction allowed on interest under Section-24.
What is an example of commercial properties?
Office buildings, medical facilities, restaurants, hotels, malls, retail stores, multifamily housing buildings, agricultural land, warehouses, and garages, etc., are examples of commercial properties.
What are the five types of real estate sector?
The five types of real estate are residential, commercial, industrial, land, and special use.
What is the advantage of investing in a commercial property?
Commercial properties have high potential for cash flow.
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