Commercial Real Estate Essay

1047 words - 4 pages

Commercial real estate is any property other than a single family home or a residential lot in a neighborhood. The commercial real estate market is handled very similarly industrial and residential real estate markets. The commercial real estate market goes through ups and downs just like any other investment market however investments into commercial real estate can be a very wise decision.
Commercial real estate is similar to industrial and residential real estate in that when you buy it you are buying a building or land. What separates these three types of real estates is how they are zoned and what they are used for. Since these three real estates are so similar the question can be asked, “What exactly is commercial real estate?” In a nut-shell almost any kind of real estate except single-family homes and lots can be referred to as commercial real estate. And even then a single family home could, in a few circumstances, be "commercial real estate" if you buy the home with the intent of renting it out and generating income or if you own the home and develop it into an income-generating property. With this in mind retail properties, office buildings, shopping centers, hotels, apartments, vacant land, and warehouses are all considered commercial real estate. Since all of these buildings are examples off commercial real estate many people look to buy and invest in them.
Commercial real estate can be purchased by anyone. Most often it is purchased by businesses or business owners. However it is not uncommon for people to invest in commercial real estate through “REITs” or real estate investment trusts. A real estate investment trust is a real estate company that offers common shares to the public. Thus making it similar to any other stock that represents ownership in an operating business. However REIT’s have two features that separate them from common stocks: its primary business is managing groups of income-producing properties and it must distribute most of its profit as dividends. For a company to qualify as a REIT with the IRS, a real estate company must pay out dividends equaling 90% or more of their taxable profit. By being considered a REIT, a company avoids corporate income tax. A regular corporation makes profit and then pays taxes on the entire profit. Then they decide how to distribute their after-tax profit between dividends and reinvestment; a REIT simply allocates all or almost all of its profit and skips taxation. As well as buying buildings and REITs investors can acquire plots of land as commercial real estate as well.
Purchasing real estate as a company or as a personal investment can be extremely confusing even for experts as it is a venture with risk, as buyers, sellers, agents, and renters alike can suffer the consequences of a dip or spike in demand. Thus, it is important that you enlist the help of a group of experts that help determine the right time to buy or sell, the right locations to consider, and the specifics of...

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