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A Quick Guide to Investing in Baltimore Commercial Real Estate

Investing in real estate is an excellent way for anyone to build wealth and generate passive income. However, deciding what type of property you want to invest in is the first step. There are five main types of real estate–residential, industrial, raw land, and special use. Today, we’ll discuss Baltimore commercial real estate and how you can succeed with this type of investment. 

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Contents of This Article:

Types of Baltimore Commercial Real Estate

Just as there are different categories of real estate, there are also different types of each real estate category. For instance, commercial real estate includes properties like office, industrial, multifamily, and retail buildings. Here are the main types of Baltimore commercial real estate and what they entail. 

  1. Office Space
  2. Industrial Use
  3. Multifamily Rentals
  4. Retail Buildings

Office Space

Office spaces may range from suburban single-story buildings to massive, multi-story urban office buildings. Additionally, office spaces are used for several different reasons. For instance, the building could be a doctor’s office or an accounting firm. 

Most office buildings have several subtypes: class A, class B, or class C. Class A office buildings are the highest quality and bring higher-than-average rental rates compared to other buildings in the area. Many class-A properties are newly renovated or updated, providing tenants with desirable amenities. 

Class B properties are similar in quality to class A, but they’re more competitive and tend to be in less desirable locations. Finally, class C properties are lower quality and tend to be priced below market value. While these properties provide usable office space, they have fewer amenities and less accessible locations. 

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Industrial Use

Industrial-use buildings are usually used for “industrial” purposes and may include warehouses, manufacturing facilities, storage spaces, and production. Unlike other commercial properties, industrial buildings are often located along highways for convenience in shipping and delivery. 

Industrial buildings are in high demand as the online shopping industry grows. Luckily, these types of investments benefit from favorable lease terms and predictable cash flow. However, industrial assets can be vulnerable to economic factors and have a higher cost of entry than other investment types. 

Multifamily Rentals

Commercial multifamily properties are buildings with five or more units within the same unit. Some examples include apartment buildings, student housing, townhomes, and more. Like office spaces, multifamily units are often categorized into class A, B, and C properties, depending on location, market demand, etc. 

While multifamily rentals remain relatively stable during economic downturns and generate a lot of income, they can suffer from high turnover rates, short lease terms, and higher property taxes.

Retail Buildings

Commercial retail properties are designed for businesses offering consumers products and services. For example, some retail buildings include restaurants, grocery stores, and shopping malls. Luckily for investors, retail establishments tend to have longer leases, meaning more stable cash flow.

However, investors may struggle with market changes since most retail buildings are specifically designed for a specific type of business. So, it could be hard to re-lease the property without significant renovations.

Next, let’s go over why you should invest in Baltimore commercial real estate and some disadvantages of this investment type. 

Why Invest in Baltimore Commercial Real Estate? Pros and Cons

Commercial real estate can be highly lucrative and a stable investment choice. However, that doesn’t mean it’s your best investment decision. Before choosing a commercial property, it’s essential to understand the pros and cons. Here are some things to note about commercial real estate if you’re thinking about investing. 

Advantages of Investing in Commercial Real Estate

  • Higher Income Potential- One of the main benefits of commercial real estate is the high-income potential. Commercial properties generally have an annual ROI of 6% to 12%, depending on the location, economy, and other external factors.
  • Flexible Lease Terms- Commercial leases aren’t always the same as residential leases, so that you could have different security deposit limits and termination rules for your building.
  • Tax Benefits- Any investment property can provide tax benefits, but commercial buildings are purchased through tax-efficient entities, meaning you can claim depreciation and other benefits. 
  • Diversification- If you’re an experienced investor, it’s great to branch out from residential investments and purchase a commercial property or another type of real estate to diversify your portfolio. 

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Disadvantages of Investing in Commerical Real Estate

  • Significant Initial Investment- Securing a commercial property will take more capital upfront than other investments. Additionally, you’ll need to invest in resources to help you secure your investment. 
  • Bigger Time Commitment- Because of the size and number of tenants in a commercial property, it can be extremely time-consuming to manage. Additionally, the quality of your management can have a significant effect on the profitability of your investment. If you need help managing your commercial property, it’s best to find a property manager in Baltimore
  • More Risks- Commercial real estate can be riskier for a few reasons. For instance, you’re taking a risk on the market conditions and your income if you have vacancies or tenants who can’t pay rent. 
  • Expensive Vacancies- Since your investment relies on tenants and monthly rent payments, vacancies can cost you a lot of income–especially if you have a small number of tenants. Losing just one tenant can create a significant loss in a smaller commercial building. 

What is Goal-Based Investing?

Goal-based investing is similar to any traditional investment model. However, it emphasizes investing to attain specific life goals. For instance, goal-based investing focuses on obtaining life goals instead of investing for a quick profit. Some life goals may include saving for college or building a retirement fund. 

Long-term investments make goals larger and generally laid out over five years or more. Commercial real estate is an excellent option if you’re looking for a long-term investment to meet your life goals. On the other hand, if you’re not saving for anything in particular and want to earn income with your property, you may consider any real estate investment. 

Things to Consider Before Investing in Commercial Real Estate

Before you go through with any investment, evaluating your current financial status, investment goals, and market conditions is essential. Here are some more critical considerations before investing in Baltimore commercial real estate. 

  1. Property Location- Location is the most crucial factor of any real estate investment–especially for commercial properties. You want to be in a high-traffic area with desirable amenities that will attract businesses and individuals. 
  2. Tenant Demand- If there’s no significant demand for commercial properties, it could be an expensive investment without many profits. So you’ll have to research the tenant demand and ensure you’ll be able to find tenants for your commercial real estate investment. 
  3. Market Conditions- Market conditions can determine your investment’s profitability. If the conditions are poor, you might want to hold off on your investment for a while. However, if the market’s looking suitable for commercial properties, you’ll know it’s time to invest. 

What Makes Baltimore a Unique Market?

Commercial properties are everywhere. However, that doesn’t mean that any location will be successful. Baltimore is the largest city in Maryland and offers many investment opportunities other towns don’t.

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Here are some of the factors that make Baltimore unique.  

  • Unique Attractions
  • Affordable Entry for Investors
  • Job Opportunities

Unique Attractions

Baltimore is a great place to invest because there are several unique attractions. After all, Baltimore is known for being a colorful and diverse place to live, with distinct neighborhoods, unique museums, and rich history. Also, did you know that Baltimore is the birthplace of the United States National Anthem? 

Low-interest Rates and High Demand

Buying properties in Baltimore is cheaper than in other areas. With affordable entry and low-interest rates, securing an investment property in Baltimore is not too difficult. Additionally, lower interest rates will drive up demand for properties in this area. 

Job Growth and Thriving Industries

There are tons of job opportunities and thriving industries in Baltimore. For instance, Baltimore is a leader in the biopharma and life sciences industries, along with the textiles and sports equipment industries. Overall, the need for retail buildings and warehouses for e-commerce businesses is thriving and growing, making it great for commercial real estate investors. 

Let the Professionals Manage Your Commercial Investment

Commercial real estate requires a ton of management–especially if you have a lot of tenants. However, it’s not always easy for investors to manage all of their assets. And luckily, you don’t have to. Instead, you can invest in professional property management for your Baltimore commercial real estate. 

Need More Advice? contact us today!

Bay Property Management Group provides comprehensive rental management services to landlords with one or more properties. We perform tenant screening, maintenance procedures, rent collection, and more. Contact BMG today if you need property management in Baltimore, Philadelphia, Northern Virginia, or Washington, DC.