26 Questions You Need To Ask About Buying Commercial Properties
Is commercial real-estate investing a greater investment than investing in residential properties? Quite simply, most of us know that real estate in general is a great investment vehicle and both residential and commercial properties may be good investments. Either avenue can have a significant effect upon your net worth, but lots of people think only of residential property when they think of investing in real estate. Although this is certainly the most viable route for some people, commercial property can offer additional benefits the residential model can not offer.
Three Reasons Commercial Investments are better than Residential Deals:
Commercial Real estate Gives you More Access to More Capital
It's been my experience which it is somewhat simpler to raise larger amounts of capital (under $3M) for a commercial deal than it really is to raise $150,000 for a residential deal. As a residential investor your access to capital is limited primarily to traditional financing, hard-money loan companies, and private money from individual investors. In the event you are not able to raise capital from one of these three avenues, then you are required to acquire property in more of a creative manner with owner financing, subject to strategies, lease options, etc. This in itself isn't a bad thing, but unfortunately you shall have to walk away from some good deals that can't be acquired with creative financing techniques.
In commercial real-estate it's more common for investors to pool their capital together and syndicate deals, additionally, you will discover that smaller private equity firms and finance businesses are more inclined to do joint venture projects and provide the needed capital to accomplish the deal should the deal makes sense. So as a commercial investor you've got the potential to raise capital for a deal from the same sources as residential projects such as: Traditional Financing and Hard-money, but in addition you might access capital through smaller private equity firms, hedge funds, private REITs, investment groups, and the list goes on.
There also seems to be a feeling of intrigue and prestige with regards to investing in commercial deals. Perhaps, because of the region of the current commercial market, it appears investors are trending more toward investing in commercial projects.
Commercial Real-estate is Less Competitive
When you consider it from a marketing perspective, most investors target residential property owners, thus making the residential market more competitive. In lots of arenas, from industry news sources, the World Wide Web, all of the "We Buy Houses" signs virtually on every street corner, there are many of marketing tactics targeting residential property owners. If you take the exact same marketing strategies discussed and apply them to commercial real estate, you will probably find you are the ONLY person contacting these commercial property owners in terms of selling their property. Most commercial properties under $5 million often be too large for some residential investors, yet too small for many institutional investors.
Commercial Real-estate allows for "Forced" Appreciation
Residential properties tend to be valued according to other comparable properties that have sold within the area and also are similar in features. Should the "comps" for a 3 bedroom/2 bathroom house in a particular neighborhood is roughly $100,000, then your property is probably going to be worth one hundred thousand dollars. It will not matter too much if your target property has additional features, or maybe if your home is getting $900 a month in rent as opposed to the home down the street that is only renting for $700 a month. Things considered, your property will still be valued pretty close to the "comps" of the place.
Conversely, in commercial real estate, the valuation of a property is based on the revenue that the property generates. Quite simply, commercial properties will still be subject to the "comps" of the place as it pertains to "How" that revenue is valued with regards to capitalization rates. However, the overall premise is that, the more revenue a property generates, the more that property may be worth.
As such, in order to "force" the appreciation of your commercial property, you'll need to search out Learn Additional ways to increase the revenue that the property generates. A small increase in revenue can increase the value of a property significantly according to the "Cap Rates" within the area for that sort of commercial real-estate. Unfortunately, with residential real estate this is not a choice while you really can not force appreciation. Your property will be valued in the general selection of the market comps.
