Real Estate Properties in residential areas are more straightforward to start with because of its low cost. That’s why I recommend starting by getting your feet in the water. The problem comes once you’re comfortable with RE at a residential level. Real Estate and you don’t climb the Real Estate ladder until you reach the Commercial level.
Even though you’re ROI may be similar percentage-wise, in relation to your investment funds
There are three good reasons to think about Commercial RE.
- A Lower Risk
If you own an apartment complex with 100 units, and 5 tenants aren’t paying rent, you’ll suffer an estimated loss of 5. If you are in possession of an SFR if the tenant fails to pay rent, you’ll suffer 100% loss!
- You Are Able To Determine Your Value
If you are the owner of an SFR, the value is determined by the fair Market Value of adjacent properties that sold within the past six to twelve months. If you’re dealing with Commercial Real Estate, you can assess your property’s worth by calculating its NOI. It is not based on how the property next door performs. It is possible to create value by increasing your earnings and cutting down on your costs. After you’ve done that, you could even enhance the property simply because of the fact that you’ve improved the Class rating of the property. Perhaps you bought an A-Class for 10 CAP. Now it’s B Class at 8 CAP.
- Value of Management
You gain added value by hiring a team of people to manage your units as opposed to. Having someone in to handle only one unit. For instance, suppose you have a Single Family Residence management that takes about an hour. You employ a person to come specifically to oversee your property at the cost of $50 per hour per hour for this service. If you have several units that require to be handled, you’ll have the money to employ your own staff rather than employ a third-party service. Most likely, you’ll be able to hire them to manage your portfolio for a fee of $30 per hour.