6 Important Facts That You Should Know About Commercial Real Estate Investing
Is commercial real estate investing a more suitable investment than investing in residential properties? Essentially, most of us know that real-estate in general is a great investment vehicle and both residential and commercial properties can be good investments. Either avenue may have a significant impact on your net worth, but plenty of people think only of residential property when they think about investing in real estate. Even though this is obviously the most viable route for many 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 has been my experience which it is somewhat simpler to raise larger quantities of capital (under $3M) for a commercial deal than it 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 lenders, and private money from individual investors. If you're unable to raise capital from one of these three avenues, in which case 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 not be acquired with creative financing techniques.
In commercial real estate it's more common for investors to pool their capital together and syndicate deals, you'll also discover that smaller private equity firms and finance businesses are more inclined to do joint venture projects and provide the needed capital to complete the deal in the event the deal seems sensible. So as a commercial investor you have visit the following website potential to raise capital for a deal from the exact same sources as residential projects for example: Traditional Financing and Hard-money, but will also you might access capital through smaller private equity firms, hedge funds, private REITs, investment groups, as well as the list goes on.
There also seems to be a experience of intrigue and prestige when it comes to investing in commercial deals. Perhaps, due to the region of the present commercial market, it appears investors are trending more toward investing in commercial projects.
Commercial Real-estate is Less Competitive
Whenever you think about 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 Net, all of the "We Buy Houses" signs virtually on every street corner, there are a variety of marketing tactics targeting residential property owners. If you take the 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 when it comes to 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 are generally valued based upon other comparable properties which have sold in the area and also are similar in features. If the "comps" for a 3 bedroom/2 bathroom house in a particular neighborhood is roughly one hundred thousand dollars, then your property is probably going to be worth $100,000. It does not matter too much if your target property has additional features, or if your house is getting $900 a month in rent in contrast 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 area.
However, in commercial real estate, the valuation of a property is based on the revenue that the property generates. Generally, 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. Still, the overall premise is that, the better revenue a property generates, the greater that property may be worth.
As such, in order to "force" the appreciation of your commercial property, you will need to search out additional ways to improve the revenue that the property generates. A small rise in revenue can increase the value of a property significantly determined by the "Cap Rates" within the area for that sort of commercial real-estate. Unfortunately, with residential real-estate this isn't an alternative as you really can't force appreciation. Your property will be valued within the general range of the market comps.
