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What is a Commercial Property?

Storefronts are commercial property.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 21 October 2014
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Commercial property is real estate that is designed for use in specific types of business situations. Unlike industrial property, which would include manufacturing plants, property for commercial use encompasses business properties such as office space, shopping centers, hotels, and service stations. The key indicator is that it is involved with the moneymaking efforts of a business, but does not engage in the actual production of goods.

Real estate zoning laws may vary slightly when it comes to commercial property from one jurisdiction to another. These laws tend to draw a clear line between property that is residential, industrial, and commercial, however. This can sometimes be confusing for some people, as some types of living space can be used for commercial purposes. For example, a residential home would not be considered commercial property in most cases, even if the home were rented out as part of a business venture. At the same time, an apartment building with multiple units of living space would be considered a proper commercial property.

Research facilities are also often understood to be commercial property. This would include laboratories and hospitals with lab functions housed within the structure. In like manner, facilities that provide basic services to clients, such as doctors’ offices, would also meet the general definition.

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As is true of all zoned property, commercial property is subject to a specific taxation structure within the local jurisdiction. In many cases, towns may offer incentives that help to attract businesses to property within the city limits, in exchange for a break on property taxes for a specific period of time. This type of incentive is often extended when the business is anticipated to provide significant benefit to the community.

In some jurisdictions, the distinction between commercial and industrial property is somewhat hard to identify. This is especially true if the property includes both manufacturing and retail space within the structure. In some areas, companies that wish to house more than one function within the same building must obtain an exception from the local jurisdiction in order to allow production and retail functions to co-exist.

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comfyshoes
Post 5

@Moldova - I agree I think that commercial property marketing would be easier if the rest of the neighborhood is zoned for commercial use. I know that renting commercial property is more lucrative because usually when you rent out commercial properties the lease could be anywhere from one to five years.

In fact, my father in law owns a warehouse that he offers leases for ten years at a time. There is usually less hassle when dealing with businesses and you almost never have problems with a business defaulting on their lease payments.

He loves renting out his commercial property. He said that it was one of the best business decisions he ever made.

Moldova
Post 4

@Mutsy - A home equity line is an option but it is a double edged sword for a lot of investors especially if the lien in on their primary property because with this type of mortgage the bank can take your home if you default on the loan.

It is an option but not for everyone. I also wondered if you could have your home reclassified as a commercial space rather than a residential space if you made some minor modifications. Since the neighborhood is made up of commercial office property you could sell the commercial property or lease the space as a commercial property.

This might make it easier to get the banks to offer financing to other buyers. Also if the space is rezoned as a commercial space the Small Business Administration also offers loans to business owners so that is another option for buyers to obtain financing. Good luck. I am sure you will find a buyer.

mutsy
Post 3

@Anon47936 -I am really sorry to hear that. So many people are having difficulty selling and buying properties because the banks are really enforcing stricter guidelines. There were even banks years ago that offered loans with no documentation meaning that the buyer did not even have to prove their income.

I think that in this situation you would probably be better off advertising for cash buyers only. I remember when I bought my vacation condo, the banks would not finance that property because the building had a 28% foreclosure rate and less than 50% of the building were owner occupants.

I was preapproved for a loan, but they refused to finance this property. What I did instead was take out a home equity line of credit on my primary residence that was paid off and use this to pay for the condo. It worked for me and there were no closing costs associated with this mortgage.

I have a variable interest only line of credit at 3.49% which I should pay off within the next two years.

I think that if your real estate agent focuses on investors or people that are able to pull equity from another home to finance the property you might be able to find a buyer.

anon47936
Post 2

We are trying to sell our house that is on commercially/indutrially zoned land. So far two banks denied the buyer a loan because of it. We bought it that way with no troubles. The house has been there for 60 years. It's one headache after another.

Erin
Post 1

what is the characteristic and beneficial of commercial properties?

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