Investing in Commercial Real Estate is as easy as ABC

By
Commercial Real Estate Agent with Executive Realty Group

abc" real estateInvesting in Commercial Real Estate can be as easy as A-B-C - alright maybe not, but knowing your ABC’s can save you a lot of time and frustration. Certainly when your deciding what and where to invest.

Commercial properties are defined -or classified- by a letter system. While classifying can get a little fuzzy - let’s just say it’s subjective - here are some basics to get you started:

Building Classifications


Class A - are newer properties built within the last 15 years and have the most amenities, highest earning tenants, and typically demand the highest rents with little-if any- deferred maintenance.  Usually owned by institutional investors -REITS-  have the lowest cap rates, highest per unit prices and have the most potential for appreciation, but lowest cash flow starting out.

Class B- are generally 15-30 years old, have some amenities, have low deferred maintenance,
Institutionally owned or by high net worth individuals., have appreciation potential with decent cash flow from the beginning.

Class C- 30+ years old with fewer amenities, have more deferred maintenance and higher cap rates and can have lower occupancy rates. Tenant base can include government subsidized tenants. Usually owned by private investors or investment groups. Provide higher cash flow and cap rates, but generally have lower appreciation.

Class D- Older buildings in challenging neighborhoods. Have no amenities and high deferred maintenance. Tenant base may require intensive management. These properties have double digit cap rates and little appreciation potential.  While these buildings by the numbers may look like cash cows, collecting rents can be challenging and what is collected may be eaten up by deferred maintenance.  These kinds of buildings are not suggested for the first time investor.

decaying buildingNeighborhood Classifications

The classifications for neighborhoods are very similar to the buildings and use the same  A,B,C & D lettering system.

A- newer growth areas
B- Older, stable areas
C- Older, stable or declining areas
D- Older, declining, potentially rapidly declining areas

Hopefully, this will help you both decide the what and where to invest in. It will also give you the ability to better describe to someone else what you want.


Other articles that may be of interest:

Self-directed 401K rollover..... and Real Estate

The Eviction Process... 7 tips to avoid costly mistakes

Are Security Deposits reall a good thing.. Chicago Apartment owners should think again

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Kim McMahon

Commercial Realtor

Executive Realty, LLC

(630) 306-1057

www.investchicagonorthshore.com

 

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Ryan Roark 11/14/2011 02:56 AM
Location:
Illinois Cook County Skokie
Groups:
Realtors®
Commercial Real Estate
Investors
Millionaire Real Estate Investor Referral Network
Tags:
investing in commercial real estate
building classifications

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Rainer
54,594
Richard Riley
RE/MAX Properties SW - Orlando, FL
CDPE, I.R.E.S.

Your A-B-C classification is as easy to understand as 1-2-3, or is it A-B-C?

Sep 16, 2011 04:00 AM #1
Rainmaker
811,832
Bruce Walter
Keller Williams Realty Lafayette/West Lafayette, Indiana - West Lafayette, IN

 

 

WESOME!

 

 

 

RILLIANT!

 

 

 

 

OMPENDIOUS!

Sep 16, 2011 05:05 AM #2
Rainmaker
733,403
Eileen Hsu
Douglas Elliman Real Estate - Manhattan, NY
LICENSED REAL ESTATE SALESPERSON

Excellent explanation on the commercial Real Estate on the classifications. It helps potential investors narrow down to different categories.

Sep 16, 2011 07:46 AM #3
Rainer
85,164
Kim McMahon
Executive Realty Group - Skokie, IL

Richard~ Commercial transactions can be so complex, that easy is always better.

Bruce~ Thank you for the kind words. I hate to admit it but I had to look up 'compendious' up- Thanks for the lesson, Teach!!

Ellen~ Thanks and your right the classifications do help investors narrow things down. Have a great weekend!

Sep 16, 2011 09:57 AM #4
Rainmaker
1,178,496
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

Selling commercial real estate definitely does look as easy as ABC in your area, Kim.  Great explanation of the different types.

Sep 16, 2011 05:51 PM #5
Rainmaker
811,832
Bruce Walter
Keller Williams Realty Lafayette/West Lafayette, Indiana - West Lafayette, IN

Right back attcha' Kim!(how is that for a compendious comment?)  ^_~

Sep 19, 2011 01:25 PM #6
Rainmaker
633,417
Mary Douglas
United Country Ponderosa Realty, Red Feather Lakes, Colorado - Red Feather Lakes, CO
REALTOR, Red Feather Lakes, Colorado

Great, not only do I get to learn the ABC of Commercial investing, but I get to look up compendious too! :-)

Sep 28, 2011 11:40 AM #7
Rainer
85,164
Kim McMahon
Executive Realty Group - Skokie, IL

Hi Mary~ Isn't is nice that Bruce continues to educate us all ;)

Sep 29, 2011 03:44 AM #8
Rainmaker
811,832
Bruce Walter
Keller Williams Realty Lafayette/West Lafayette, Indiana - West Lafayette, IN

Mary, now you know CAPACIOUS and COMPENDIOUS!!!   ^_~

Oct 03, 2011 07:21 AM #9
Ambassador
617,580
Tammy Emineth
Personal SEO - Website SEO and Real Estate Marketing - Marysville, WA
Content Marketer, SEO Teacher, Website Fixer

Where have you been girl!? I've been missing your smiling face on here lately!! :)

 

Nov 17, 2011 09:14 AM #10
Rainmaker
811,832
Bruce Walter
Keller Williams Realty Lafayette/West Lafayette, Indiana - West Lafayette, IN

 

              HAPPY THANKSGIVING, KIM!!!!

Nov 24, 2011 04:46 AM #11
Rainmaker
3,431,742
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hey Kim, where are you, I miss seeing you here in the rain.  Hope to see you soon.

May 27, 2012 12:50 AM #12
Rainer
90,161
Phil Hillerman
Crye-Leike Realtors® - Rogers, AR
Crye-Leike Realtors®

Hi Kim, I hope you are doing well in real estate and find the time to come back and play in the rain.

Apr 19, 2013 06:14 AM #13
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