Is it better to invest in commercial property or residential

62 Replies

What is a safer bet, investing in commercial buildings, or investing in residential properties. If you become a local landlord to shops in a town, would that be better then if you had homes there?

Thank you.

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Thanks for the response!

What are APOD's?

What is non-conforming real estate?

Why would the cash flow be better on commercial properties? Do they usually have better cash flow then residential properties??

Thanks again
:mrgreen:

Why would the cash flow be better on commercial properties? Do they usually have better cash flow then residential properties??

I have no experience with commercial properties, but from observation i can say... small companies tend to stay in their units much longer than a renter would.

of course there is the exceptional few 'dream renters' who take good care of your house and stay for years upon years, but for the most part I believe you will see 5, 10, maybe even more come through a residential rental in the time that you would see 1-2 through a commercial rental.

I can name a number of small shops in my town that have been renting the exact same units for 20+ years. my company has been in our unit for 4 years now.

Hello, My clients tell me that commercial properties have better value and better cashflow. Also, that million dollar lenders realize that value and are more willing to work with commercial investors.

I prefer commercial property. If you're interested or thinking of investing in commercial property and have 10% down + 3% closing. I have properties available with approved financing. Just contact me and I'll get you more details.

Commercial!

When was the last time you saw a bank, pension fund or insurance company investing in residential? Like Willy Sutton, they know where the money is! Also if you're in a state like TX, and a commercial tenant doesn't pay (hey it does happen, I was in Houston in the '80s) there are things you can attach. In residential down here I guarantee you that anyone worth his salt can keep everything he owns EXEMPT from you attaching it.

Better cap rates, better cash flow, longer term tenants... SCHWEET.

all cash

Terri,
Def commercial is the way to go... in some cases thet double or triple thier value in good markets every 10 years. That is a ton of money!

Jaime S. Fernandez
Mortgage Consultant
Meridian Capital Group, LLC

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Wow...this is a terribly slanted and self-serving thread. If you are a new investor and you are reading this, please note that many of these posts are from commercial lenders!

Commercial investing can be extreamly profitable. There is no doubt about it. All Cash made a very valid point that large company investments are in commercial. Although I will add to that comment by saying that these types of companies are moving around so much money that it wouldn't be feasible to purchase residential property. In order to manage moving so much capital into real estate, commercial is the only viable option.

In my opinion, though, commercial is NOT the place for a newbie investor to get initiated. The higher rewards come with higher risks that if not managed properly can bury an investor for good. What if the anchor triple-net leaves and you have 20,000 sq. ft. of space to lease. There are very few potential tenants to put into that place. What happens in the office building when the majority tenant is sent into bankruptcy because of a bad management decision and they vacate your property?

It is true that normally commercial tenants stay for very long periods of time. The trouble is that if you do get a vacancy, it can remain vacant for a very long time as well. It is not unusual at all that available space can be vacant for years. The bank is still going to want their PI payments and the city & county are going to still want their property taxes and the insurance company is going to still want their premiums. That has to come from the owners pocket and the bills can be HUGE.

Ultimately, for the seasoned investor, commercial can be unbelievable for its cash flow, appreciation and returns. But I have to caution anybody that doesn't fully and completely understand what Charles said in his post above is not ready for commercial at all.

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Jeff,

I think "oldbie" is a new one, but it doesn't seem to flow off the tongue as well as "newbie".

I do not disagree that, on average, the profit potential is way higher in commercial, that is a fact. The problem is that the downside is also much bigger. If you bought up office space a couple of years ago in Cincinnati, you may be going bankrupt today. People can't give that stuff away right now in this city. If you had done the same think in Columbus (just 2 hours drive north), you would be rolling around in cash.

If a new investor doesn't clearly understand the terms that Charles used in his post (i.e. APOD, NOI, CAP, etc.) they don't have the tools they need to succeed. The only way to mitigate risk is to increase knowledge. SFRs represent a lower risk than commercial given the same level of knowledge.

I am just trying to balance out this thread because of how many "newbies" come here for information. If my insurance guy only sold Whole Life and I asked him what life insurance is best for me, what do you suppose his answer is going to be?

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Prohabber I have to disagree and agree!!!!

Commercial all day long. If you have the Cash to get in. As a long term investment, it is the best. Period.

If you know what your doing or have someone show you how to do it.

I dont want no stinking shopping centers with anchors. I don't want no stinking apartments with 500 tenants with one year leases. I don't want no stinking SFR development deals. I don't want uncertainty enter into my mind any time in the next 5 to 10 years.

Why not Residential?.....There is no money in it. From the lenders perspective.

Commercial-Single Tenant--Investment grade-15 years remaining on the leases-NNN-Backed by a bond for the total lease amount-all day long?

Where is the risk in that?

I agree cause if you dont know what an APOD, NOI, Cap Rate, Investment grade, or Single tenant is.....Learn first and then start.

Residential is not the end destination just the starting point.

Thanks Charlie for your post...(Charles is one of my mentors by the way great Man)

If you are seriously considering commercial, education is definitely important. I'm almost done with my http://www.CCIM.com education and I've learned a lot. I do acquisitions & development for a private equity RE company, so i'm definitely partial to commercial. With knowledge, you can take out sooo much of the risk and get a good return.

OK Aole,

You have my attention. You have acknowledged that the right knowledge can mitigate the risk of commercial investing. Donald Trump would think a certain deal is a no-brainer that I wouldn't even touch because he has more knowledge than I do.

Now, lets assume that an investor studies hard and understands the language of the commercial game. What are the differences that you have seen in going from residential to commercial? What are the expected returns of each? How much more creative can commercial get than residential?

Either or neither nor. You need to know more about what you are doing first and then be able to ask the smart questions with specificity and not such broad general ones.

Charlie

The reason this site was established was so people like Terri could ask questions like this one to learn more. Don't criticize people for their lack of knowledge. Everyone starts somewhere.

Thank you..

Originally posted by "biggerpo":
The reason this site was established was so people like Terri could ask questions like this one to learn more. Don't criticize people for their lack of knowledge. Everyone starts somewhere.

Thank you..

My words were not meant to be critical but instead helpful. I am in no postition to critiicize anyone for anything and came to this board for help also. I think it is very helpful to tell folks to not invest without anyknowledge. I am sorry the the ones with more knowledge do not have more time to devote to answering questions but then as some pointed out there are approved methods of gaining the basics.

Charlie

I agree with you right now, with the market like it is.

And another thing....

Welcome to the forum! I see that this is your very first post.
I hope you'll be stickin' around for awhile and joining in
the conversations.

Head on over to the introductions section, why don't you,
and tell us a little bit more about yourself and what your
goals and ambitions are.

Again, Welcome

I have been investing in commercial real estate on a full time basis for three years now. I thought it was all the same rules, but quickly found out that it's a whole different ball game than residential. The problem is that there are few books that you can read just on commercial, so usually you just learn as you go. I've made a lot of mistakes, but to sum it up yes commercial beats the pants off of residential investing. I am just editing a book that I've written about making the transition into commercial real estate. It contains all the crap you really need to know. Trust me, the existing commercial real estate investing books don't tell you the important stuff. It's an opportunity for people to learn from my mistakes.

can anyone recommend a good book on commercial real estate investing. The only one i have read on the topic is "confessions of a real estate entrepreneur"

i am young and intrigued, from a SFR to a 4 unit building in 6 mos and only looking to head upwards.

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