Over the past couple of years, the foreclosure rate of the commercial market has risen and now sits at historic highs. Prime properties in once considered high demand locations remain vacant as builders and owners reduce their prices and offer incentives to attract potential buyers.

In previous posts, I’ve discussed the South Florida commercial real estate market in great detail. Most recently, I shared three reasons Florida investors should consider investing in commercial real estate. The reasons I shared included the now significantly reduced prices of most properties, the steady income you can produce through commercial leases, and the potential to make a good return on your investment dollars.

Whether you’re new to the idea of investing in commercial properties or you’re interested in diversifying your real estate portfolio, it is important that you understand a few simple facts about commercial properties and how they differ from residential. Here are basic facts you should consider before you invest in commercial real estate.

1. Unlike residential properties, the value of commercial real estate is primarily based on the square footage of usable space.

2. If you’re considering leasing your commercial real estate investment, it is important to note that because commercial lease terms tend to cover a longer period of time,  your cash flow can be more stable than it would with a shorter term residential lease.

3. Investors are able to attract more money and secure a larger cash flow with multi-unit commercial properties. Why? It’s simple mathematics. If you have 10 tenants making on-time monthly rental payments compared to only 1 tenant, you will generate a larger cash flow that can remain stable for a substantial period of time.

4. When you’re ready to purchase your investment, you should be prepared to pay a heftier down payment on a commercial property. Typically, the investor is asked to come up with thirty (30) percent more than the down payment on a residential property.

5. Commercial foreclosures can be an investor’s best friend. Despite what you may have heard, there are just as many, if not more, commercial properties that are either facing or pending foreclosure. Banks are eager to sell them as they do not want to hold on to commercial properties any more than they do residential.

6. Commercial properties are often less risky than single-family residential property investments. Yes. You heard me correctly. Lets compare the investments of two gentlemen – Mr. A and Mr. Z.

Mr. A owns a small apartment complex located in a middle class community, and Mr. Z owns a beautiful victorian style home located on the Upper West side of town. Mr. A’s apartment complex is full to capacity with 10 tenants, and Mr. Z’s home is occupied as well by a wonderful family. If Mr. A loses a tenant, he loses only ten percent (10%) of his monthly rental income, while Mr. Z will lose 100% of his if the single family decides to vacate the premises.

Investing in the right commercial real estate, can be financially rewarding for you and can give your portfolio the diversity it needs. But, before you dive right in, hire a Florida real estate transactions attorney that will help you  research potential investments and hold your hand throughout the property acquisition process. The attorneys of Schecter Law have the experience necessary to help investors purchase office buildings, warehouses, shopping malls, multi-family apartment complexes or other commercial real estate that can result in a good return on investment for you.