Commercial real estate is a commodity that has amazing potential for income and long-term gain. It also is relatively poorly understood and is thus seemingly off-limits to many real estate investors. I can think of six key reasons why you should reconsider the value of commercial real estate, if you've ever before thought this way yourself.
Reason 1: Bigger equity margins. Many investors look to secure a 20% discount (or better) when they buy investment property. For a $100,000 single family home, this means a minimum $20,000 equity margin at the time of purchase. For a $1,000,000 commercial property, this same discount means a margin of $200,000. The math is clearly in favor of your net worth with commercial real estate.
Reason 2: Better income potential. Commercial real estate is fueled by the income it generates and, with most properties having larger numbers of units, the income is usually both predictable and significant. One vacancy is not the end of the world and there is definite strength in both numbers and in the owner's peace of mind.
Reason 3: Less competition. For the same reasons why you may have passed over commercial real estate in the past (or at least been hesitant about pursuing it), so too will many of your peers. A very small percentage of real estate investors ever venture into commercial properties and that means those deals that are out there have fewer people looking to buy them.
Reason 4: Less management input from the owner. Commercial properties have less management requirements for two key reasons. One, the actual physical needs of the property are condensed, meaning 20 units don't have 20 roofs to keep up with. Second, larger properties will usually necessitate professional management and this cost is simply a part of analyzing a property.
Reason 5: Sellers are more creative. With commercial properties, the purchase requirements are often more limiting, at least in terms of what it takes financially to get to the closing table. Funding is abundant but lack of down payment funds often limits many investors. Because of this, the chances of securing seller financing are much better with commercial properties than their residential counterparts, simply as a way to complete more sales.
Reason 6: Financing is easier to secure than you might think. It is a reasonable argument that smaller real estate investments are much harder to fund than larger ones. In short, it isn't just about the size of the purchase. It's about the quality of the investment and a commercial real estate investment will always make more sense on paper than a comparable one for residential property.
With all of these great reasons to invest in a proven commodity, what are you waiting for? You simply need a few tools and a new basic knowledge base and there's nothing holding you back from there.
By:David Lindahl
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