What Is A Commercial Property?

May 26, 2023

A commercial property usually refers to a type of property which is used for commercial purposes and to generate a profit. Commercial properties encompass shops and offices but, depending on the property type, could also cover some residential properties.

When it comes to mortgages, both first charge and second charge mortgages, it is possible to get the necessary finance, although it is very likely that interest rates will be much higher as the mortgage will be for commercial rather than residential purposes.

What is a commercial property?

A property is anything which a person, or business, is legally entitled to; a legal title implies ownership with certain enforceable rights. Within this definition, property could be tangible or intangible. Tangible property, meaning real property, refers to real estate or land.

Commercial properties concern anything which relates to commerce – the act of making a profit. Thus, commercial properties encompass any properties or buildings which are home to activities that are designed to generate a profit. This could cover a range of things including shops, food and drink establishments and businesses. However, it can also refer to any land used to generate a profit, including large residential rental properties.

The Office for National Statistics (ONS) also highlights a subcategory of commercial properties known as ‘private commercial’. This includes schools, universities, health buildings, offices, entertainment, garages, shops and agriculture.

What is the difference between residential and commercial?

Residential real estate refers to any single-family homes and one to four-unit rental residences. Commercial property, on the other hand, concerns anything with five or more units.

What are the differences between investing in residential property versus commercial property?

Commercial property is generally considered to be a sensible investment; although the initial investment costs are higher than for residential real estate, the return on investment is usually far higher. When dealing with commercial property, you work with companies and straightforward leases which can often be less complicated than working with some residential tenants.

Those investing in commercial property can expense certain costs, including building insurance and real estate taxes, to the company who are leasing the premises; this is not an advantage which can be enjoyed by those investing in residential property.

Additionally, when it comes to property pricing, prices of commercial properties are less subject to specific factors and investors can rely on more objective data when agreeing on a fair price.

What type of property is a commercial property?

There are certain types of residential real estate which fall under the classification of commercial property. Sometimes this subcategory is referred to the multifamily sector. The multifamily sector encompasses all types of residential real estate outside of single-family properties which includes apartments, condos, cooperatives and townhouses.

When considering blocks of flats, they fall into multiple different property types including high-rise, mid-rise, garden-style, walk-up, manufactured housing communities and special-purpose housing. These subgroups differ based on how many floors the building has, how many apartments are in the building, and whether or not the building contains a lift, as well as other factors.

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