Is investing in commercial real estate a better option than investing in residential properties? All of us know that real estate is a great investment in general which both residential and commercial properties might be profitable. Either way, it can significantly increase your net worth. Most people only consider residential real estate when investing in real estate.
Advantages of Commercial Investments to Residential
Is commercial real estate easier to invest in than residential real estate? While this is undoubtedly the most practical option for most people, commercial property can provide extra benefits that the residential model cannot. The following are the top three reasons commercial investments are preferable to residential ones:
1. Increased Capital Access
Hard money lenders, traditional financing, and private money from individual investors are your main financing sources as a residential investor. If you can’t get money from these three sources, you’ll have to be innovative with owner financing, which is susceptible to strategies, lease options, and other factors. This isn’t a bad thing, but you’ll need to hand down particular good deals that can’t be bought through innovative financing methods.
It is very common for investors to pool their investments and participate in syndicated deals in commercial real estate. Smaller private equity and finance companies are also more likely to do joint ventures and provide the necessary capital to complete the transaction if the offer makes good sense.
As a commercial investor, you have the same options for raising capital for a venture as a residential investor, such as Traditional Financing and Hard Money. Smaller private equity firms, hedge funds, private REITs, investment organizations, and the list goes on and on are all possible sources of financing. Learn more right here.
2. Less Competitive
Many investors target residential property owners from a marketing viewpoint, making the residential market more competitive. Many marketing techniques target residential property owners, varying from industry news sources to the internet to the ubiquitous “We Buy Houses” signs on practically every street corner.
Use the same marketing strategies for commercial real estate as previously discussed. You’ll probably find that you’re the only one contacting these commercial property owners about marketing their property. Many commercial properties under $5 million are too big for most residential investors yet too small for most institutional investors.
3. Allows “Forced” Appreciation
Moncton residential properties are often assessed by comparing them to similar properties recently sold in the area and have comparable qualities. If the “comps” for a three-bedroom, two-bathroom home in a specific area are about $100,000, your property is likely to be worth $100,000 also.
It doesn’t matter if your target property has more features or if your house rents for $900 per month instead of the house down the street that rents for $700 monthly. In the end, your property will be appraised relatively close to the “comps” in the neighborhood.
However, in commercial real estate, a property’s value is calculated by the amount of money it generates. Now, when it pertains to “How” income is valued in terms of capitalization rates, commercial properties are still subject to the “compensations” of the location. However, the general principle is that the more money a property creates, the more valuable it is. Visit this website to find out more about commercial real estate.
The worth of a commercial property is inextricably linked to the money it brings in and the overall demand for its services. Therefore, based on the property’s location and highest and best use, commercial real estate investments can gradually generate a higher return on investment than residential ones. This is possibly even more true in this market cycle.