Real estate investment can be a very profitable type of passive income, but many potential investors don't even consider commercial real estate instead of residential homes. The first step to knowing if this investment type is for you is learning more about the five different types of commercial property to choose from so you can make an informed decision.

1. Office

Office space is the most common type of commercial property available, and the most common for successful investors such as Paul Daneshrad to invest in. They range in size and scope, from a single-tenant space to multi-floor towers, so they fall into three main definitions.

  1. Class A properties are usually brand new or highly renovated, and draw high rents due to their prime locations. In general, they require professional management to remain a good profit generator.
  2. Class B properties typically need extra investment funds in the form of repairs or upgrades. They are generally well-managed, however, making them a prime option for a wide range of investors.
  3. Class C properties usually have poor locations, degraded or worn-out infrastructure and significant repairs that require a big initial investment. While they're often a significant risk, the payoff can be substantial with the right market and approach.

2. Retail

Retail spaces can currently be had for a steal as stores big and small shut down amid the rush to online commerce. This category encompasses retail centers, restaurants, banks and more that are usually dotted among residential areas. The typical square footage ranges from 5,000 to 350,000.

3. Industrial

This category is generally restricted to warehouses, factories and other manufacturing-related buildings. Investors should consider attributes such as height restrictions and availability of docking space when considering industrial investments.

4. Special Purpose

These sites are typically a challenge to come by, as they are built to fulfill a specific function. In many cases, the specificity makes them difficult to adequately renovate for repurposing.

5. Multifamily

Although many people think of multifamily housing units as residential property, condos, apartment complexes and even smaller multifamily units count as commercial property, as long as there are four or more units in total. Multifamily investments can be a great bridge for residential investors, as many of the risks and responsibilities are similar but scaled up.

No matter what type of property you're looking to invest in, starting with basic facts like the types of property to consider is the first step toward building a solid plan for the future.

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