Commercial real estate—office, retail, industrial—operates differently than residential. Tenants are businesses, leases are longer, and valuation is income-driven.
Lease Structures
Triple-net (NNN): tenant pays rent plus taxes, insurance, and maintenance. Gross: landlord includes expenses in rent. Understanding lease structure is essential for analysis.
Valuation
Commercial properties are valued on cap rate: NOI ÷ value. Improve income and value increases proportionally—unlike residential where neighborhood comparables cap value.
Commercial requires more capital (25-35% down), commercial loans, and sophistication. Many investors start with residential before moving to commercial.