Buying commercial property in Maryland can be a daunting task. Making sure you find the right realtor near you is only a part of the process.

With its proximity to both Metropolitan areas, Washington D.C. and Baltimore, Frederick, Maryland, has become a growing city. Between 2010-2020, Frederick added 12,932 residents, according to an analysis of U.S Census Data.

As the population increases, buying commercial real estate in Fredrick is an excellent opportunity for investors. However, if you are a new investor, take this beginner’s guide to buying commercial property as a resource.

What Is Commercial Real Estate?

Before you check commercial real estate listings in the Fredrick area, first, you must understand what commercial real estate is.

Commercial real estate, also known as CRE, is a property used for business-related purposes or to provide a workspace rather than as a living space. Retail offices, warehouses, and apartment buildings are all examples of commercial real estate properties.

Commercial real estate offers steady cash flow but higher income potential than residential properties. Therefore, commercial real estate usually requires more investment knowledge and up-front capital than residential real estate.

Know the 3 Categories of Commercial Real Estate Before Buying Commercial Property

Commercial real estate properties are broken into three classifications:

Class A properties are described as the highest quality buildings in the area. Usually, newer properties built within the last 15 years have top amenities, high-income earning tenants, and low vacancy rates.

Additionally, they typically demand the highest rent with little or no deferred maintenance issues.

Class B properties are older and a level down from Class A properties. As a result, rental income is typically lower than Class A. Still, investors see these as “value-add” investment opportunities because properties can be upgraded to Class B+ or Class A with renovations and modernization.

Class C properties need renovation and updates to the infrastructure. Properties are typically more than 20 years old and located in less desirable locations. Some Class C properties need significant reposting to get to steady cash flows for investors.

Examples of Commerical Real Estate

Frederick’s growing community offers many entry points for commercial real estate investors. People need somewhere to stay, somewhere to work, eat, play, and the list goes.

  • Multifamily: Multifamily homes are residential properties with more than one unit, like duplexes, garden apartments, or assisted living facilities.
  • Office space: Medical office is an example of “office space” commercial real estate. They’re designed to allow for multiple tenants depending on size.
  • Retail: This type of real estate is designed for businesses that sell goods or services to consumers. They’re usually located in places conveniently accessible, like regional malls and strip shopping centers.
  • Industrial: These properties range in size, like office spaces, and host industrial operations, such as manufacturing and assembly. Frederick has many industrial properties ranging in all classes.
  • Hospitality: This covers establishments that service tourists, whether for meals, accommodations, or entertainment, like hotels and short-term rentals.

Advantages of Buying Commercial Property

One of the most significant advantages of investing in commercial real estate is lucrative leasing rates. Commercial real estate benefits include more extended lease contracts with tenants than residential real estate. This creates a stable and substantial cash flow for the commercial real estate holder.

In addition to tenant stability and income, commercial real estate provide the potential for capital appreciation; as long as the property is maintained and kept up to date.

Disadvantages of Commercial Real Estate

Rules and regulations are the primary deterrents for most people wanting to buy commercial real estate. In addition, taxes, methods of purchasing, and maintenance responsibilities for commercial properties can be a lot for someone buying their first commercial property.

Requirements may differ depending on the state, county, industry, size, zoning, and many other designations. An option for buyers is to hire a team of specialists.

Another hurdle is the increased risk brought with tenant turnover, especially in an economy where unexpected retail closures leave vacant properties with little advance notice.

Unpredictable factors like a global pandemic or natural disaster also create a risk. For example, if tenants are forced to close the shop, that could leave you with a strapped-for-cash tenant.

 

Buying commercial real estate is an excellent way for an investor to diversify their portfolio. While entry points may be challenging and require much education, once you’ve found your first tenant, you’ll be able to establish a new gold mine for yourself and your family.