Commercial vs Multifamily real estate

[Stephen Jones]

BP,

For the last 10+ years I have drove one vehicle, Multifamily RE. I have roughly 200 units in my portfolio currently.

A commercial property came across my desk and I currently have it under contract and am in the due diligence period right now.

Can investors who own both MF and Commercial property tell me their experiences? Which one do you prefer? Pros? Cons? Etc.

I will have to sell 35 units to acquire this property, needing a 1.4 million dollar down payment.

This property is in an unbeatable area but it doesn’t cash flow as good as the 35 multi units.

I know this is a little bit of a loaded question, but I just wanted to get a take on everybody’s experience with the commercial side due to me being so inexperienced and new to it. Thanks!

[Frank Pyle]

I've owned mostly small multifamily too and the biggest shift with commercial is you stop underwriting like a "unit" deal and start underwriting like a business with more moving parts. The upside is usually better location and bigger long term value if you can grow NOI, but the downside is vacancy risk hits harder and tenant rollover can get lumpy, plus financing and exit liquidity can feel tighter depending on the asset type.

If you're giving up 35 doors that cash flow better, I'd be really clear on what you are buying instead of cash flow. Is it NOI growth, rent bumps on existing leases, expense cuts, or a big appreciation story in that unbeatable area. I'd also stress test a couple bad scenarios like one big tenant leaves or rates stay higher longer and see if you still sleep at night after selling those units.

What type of commercial is it and how many tenants. What are the current rents, lease terms, and your plan to force NOI the first 12 to 24 months.