Bernstein & Feldman, P.A.

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Understanding the complexities of commercial real estate

Many people in Maryland would like to invest in commercial real estate. Some have backgrounds in investing in residential real estate and believe crossing over into the commercial market will be similar. There are a number of differences between commercial real estate and residential real estate investing that are important to understand, however.

Unlike residential real estate, which is largely valued based on neighboring property sales, commercial real estate is looked at differently. For commercial properties, the important consideration is the cash flow offered by the building. Even if buildings are located in the same area and have similar square feet, they may differ in their value. This largely depends on how the property can be used and the money it will generate.

Commercial real estate investments also rely on different formulas for profit and loss, including cap rates, loan to value ratios and net operating incomes. Understanding these formulas and then using them to analyze a property is an important undertaking. Looking forward is also a good strategy, including considering what might happen to the building and the area in the future. Like all other investment types, it is important for people to diversify, holding more types of investments than just their commercial property ones.

The transfer of commercial real estate can be very complex, involving numerous contracts and other legal documents, financial and sector analysis and large financial undertakings. Those who are interested in investing in the commercial real estate market may find it helpful to consult with a real estate attorney. Legal counsel may assist by conducting a thorough analysis in order to determine whether a particular commercial property would be a sound investment. The attorney may also help to draft and review the many documents that may be involved in such a large financial transaction.

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