The definition of commercial real estate is any property with a total of four or more residential units, or one which is being used by a business. This includes retail, office, and industrial space, along with apartment complexes and hotels. In contrast, residential property is regulated from one to three residential units which includes single-family homes, townhomes, and condominiums.
Commercial Leasing differs greatly from Residential Leasing. A typical commercial lease averages five (5) years but can be longer depending on the amount of tenant improvement work undertaken. In contrast, residential leases have standard one (1) year lease terms. This makes for commercial property having a steadier cash flow due to less tenant turnover and thus less vacancy. Additionally, commercial net leases call for tenants to pay for the Landlord’s expenses such as property taxes, property insurance, and property maintenance which adds greatly to the bottom line and delivers higher returns. President Jon Paley has decades of experience converting years old leases to brand triple net new leases whereby Tenants cover the Landlord’s costs.
The laws governing Residential Real Estate Property offers tenants much greater protections as opposed to Commercial Real Estate, making it much more difficult to evict tenants. This is especially evident in California whereby residential tenants negatively affected by Covid are still not required to pay rent when Commercial Tenants have been required to pay for over a year. Feel free to reach out to us with any questions you may have regarding these ever-changing rules and regulations.
Zoning Laws are extremely important in Commercial Property in both the operation of a business and the procurement of building permits, while Residential Property is typically synonymous and much more straightforward.
Commercial Real Estate Investing vs. Residential Real Estate Investing. Even in a down market, people will always need a place to live. This insures that residential property is more stable in times such as these. As we saw during the pandemic, many offices were closed and employees were forced to work from home, causing many companies to rethink their business models moving forward. As a result, many office buildings have experienced a considerable amount of vacancy and have not yet returned to their pre-pandemic occupancy levels. If you are interested in transitioning into commercial real estate investing Paley Commercial Real Estate can help.
Commercial Financing differs greatly from Residential and is much more difficult to obtain. With a Commercial Loan, Buyers are required to provide the Lender considerably more documentation and demonstrate a proven track record. By contrast, Residential Loans tend to be less complicated. Commercial borrowers can qualify for Small Business Administration Financing for the purchase of Owner-Occupied commercial real estate, which is guaranteed by the Federal Government and only requires a 10% down payment and is amortized over 25 years. Real Estate Financing for investment property is scrutinized by the Lender and requires detailed personal documentation. In addition, every investment property is evaluated on their own merits which prevents Buyers from being pre-qualified, as opposed to residential financing which allows for Buyers to be truly pre-qualified. This is why when seeking financing one should procure the services of an experienced Commercial Mortgage Broker and not attempt to utilize a Residential Mortgage Broker with limited knowledge of how this type of financing works. Paley Commercial handles several different types of commercial financing through a variety of Lenders.
The potential Environmental Issues in commercial real estate come into play with nearly every transaction. This is why environmental background checks such as Phase 1 Reports are untaken to mitigate potential future issues with a commercial property. These screenings are performed and delve into the history of the property and if any past uses pose potential health risks. Residential properties are mostly concerned with mold. Need an Environmental Company referral?
Commercial Real Estate Agents and Residential Real Estate agents have a completely different skill set and it’s important to know what each can bring to the table. Residential Agents work with homes. Commercial Agents work on various types of property including retail, office, industrial, and land. Since Commercial and Residential transactions vary greatly, it is important to work with an experienced agent who specializes in the type of property they are advising on. Commercial Brokers and Agents work primarily during the week during normal business hours, while Residential Agents work evenings and on the weekends. Commercial Agents seem to have a heavier workload due to the fact that there are more moving parts to commercial real estate. Commercial transactions require more due diligence as it relates to market trends, cashflow, and complicated financing.
What’s a better investment- Commercial Property or Residential Property? It depends on the investor and what their comfort level is. It is much easier to get started in residential real estate because of its low price point in comparison to commercial. Many Commercial Real Estate Investors started out in residential and segued into commercial.
Due Diligence periods are much longer in commercial real estate transactions as opposed to residential. It is common for a commercial inspection period to be thirty (30) days in order to allow time for a Phase 1 Environmental assessment. In the current ultra-competitive residential purchase market, seven (7) days has become the norm in order to match competing Buyers. In addition, commercial financing requires a minimum of forty-five (45) days to be underwritten and appraised before bank approval is given. A residential loan can be pre-approved and is able to close in less than half the time. In the event the commercial purchase involves the development of a land parcel, the due diligence period can last many months to allow for the procurement of entitlements.
In conclusion, Commercial Real Estate differs greatly from residential real estate. This is why Paley Commercial Real Estate only handles Commercial Property. When looking to lease or purchase commercial property it is essential that you hire a commercial real estate professional who keeps up-to-date with the current area availabilities, lease and sale comps, along with latest markets trends. In the fast-paced world of Commercial Real Estate you must engage the services of the right company. Paley Commercial Real Estate – Brokers San Fernando Valley is just that. Specializing in San Fernando Valley Commercial Real Estate since 1984, our group of seasoned Brokers and Agents are involved in every aspect of commercial real estate from investment property sales to commercial leasing to expert property management services
Experience the Paley Difference that comes from years of expertise putting each and every client’s best interests above all else.