Is investing in commercial real estate a better option than residential properties? We all know that real estate is an excellent investment in general and that both residential and commercial properties may be profitable. Either path 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 indeed the most practical option for many people, commercial property can give additional benefits that the residential model cannot. The following are the top three reasons commercial investments are better than residential ones:
1. Increased Capital Access
Hard money lenders, traditional financing, and personal money from individual investors are your main financing sources as a residential investor. If you can’t get money from one of these three sources, you’ll need to be creative with owner financing, subject to strategies, lease options, and other factors. This isn’t a bad thing, but you’ll have to pass on particular good deals that can’t be bought through creative financing techniques. Learn more right here.
It is really common for investors to pool their investments and participate in syndicated deals in commercial real estate. Smaller private equity and finance businesses are more likely to do joint ventures and provide the necessary capital to finalize 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 continues are all possible sources of financing.
2. Less Competitive
From a marketing point of view, most investors target residential property owners, making the residential market more competitive. Many marketing techniques target residential property owners, ranging from industry news sources to the internet to the common “We Buy Houses” signs on virtually every street corner.
Use the same marketing methods to commercial real estate as previously discussed. You’ll most likely find that you’re the only one calling 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 many institutional investors. Check out commercial brokerage Nova Scotia for more information.
3. Allows “Forced” Appreciation
Residential properties are usually assessed by comparing them to similar properties recently sold in the area and have comparable qualities. If the “compensations” for a three-bedroom, two-bathroom home in a particular neighborhood are about $100,000, your property is most likely to be worth $100,000 too.
It doesn’t matter if your target property has extra 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 reasonably close to the “compensations” in the neighborhood.
In commercial real estate, the value of the property is determined by the amount of money it produces. Now, when it comes to “How” revenue is valued in terms of capitalization rates, commercial properties are still subject to the “comps” of the location. However, the general principle is that the more money a property generates, the more valuable it is. Learn more about commercial brokerage Fredericton.
Conclusion
The value of a commercial property is inextricably linked to the money it generates and the overall demand for its services. As a result, based on the property’s location and highest and best use, commercial real estate investments can gradually produce a higher return on investment than residential ones. This is possibly even more true in this market cycle.
