Residential vs. Commercial Real Estate Investment: Which One Is Better
Is investing in commercial real estate a better option than residential properties? We all know that real estate is a great investment in general which both residential and commercial properties might be profitable. Either path can significantly increase your net worth. Many 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 certainly the most practical option for many people, commercial property can give the residential model extra benefits. The following are the top three reasons commercial investments are better than residential ones:
1. Increased Capital Access
Hard money lenders, traditional financing, and private money from individual investors are your primary financing sources as a residential investor. If you can’t get money from one of these three sources, you’ll have to be creative with owner financing, which is susceptible to strategies, lease choices, and other factors. This isn’t a bad thing; however, you’ll have to hand down specific good deals that can’t be purchased through innovative financing techniques.
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 most likely to do joint ventures and offer the necessary capital to finalize the deal if the deal makes 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 companies, hedge funds, private REITs, investment companies, and the list continues are all possible sources of financing. Learn more from Fredericton Commercial brokerage.
2. Less Competitive
From a marketing point of view, many investors target residential property owners, making the residential market more competitive. Many marketing strategies are targeted at residential property owners, ranging from industry news sources to the internet to the ubiquitous “We Buy Houses” signs on practically every street corner.
Apply the same marketing techniques to commercial real estate as previously tackled. You’ll probably find that you’re the only one calling these commercial property owners about selling their property. Many commercial properties under $5 million are too big for many residential investors yet too little for many institutional investors. Check out Moncton Commercial brokerage for more details.
3. Allows “Forced” Appreciation
Residential properties are commonly evaluated by comparing them to similar properties recently sold in the area and have similar qualities. If the “comps” for a three-bedroom, two-bathroom house in a specific neighborhood are about $100,000, your property is likely to be worth $100,000 too.
It doesn’t matter if your target property has extra features or if your home rents for $900 monthly instead of the house down the street that rents for $700 per month. In the end, your home will be evaluated relatively 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 pertains to “How” income is valued in terms of capitalization rates, commercial properties are still subject to the “compensations” of the area. However, the standard principle is that the more money a property generates, the more valuable it is. Click here for more information about commercial real estate.
The worth of a commercial property is inextricably connected to the money it produces and the overall demand for its services. Therefore, based on the property’s location and highest and best use, commercial real estate investments can make a higher return on investment over time than residential ones. This is maybe even more true in this market cycle.