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 and that both residential and commercial properties may be profitable. Although either way 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 certainly the most practical option for most people, commercial property can give additional benefits that the residential model cannot. The following are the top three reasons why commercial investments are better than residential ones:
1. Increased Capital Access
As a residential investor, hard money lenders, traditional financing, and personal money from individual capitalists are your main financing sources. 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 options, and other factors. This isn’t a bad thing, but you’ll need to pass on specific good deals that can’t be purchased through innovative financing techniques. Learn more about commercial real estate here.
It is really common for investors to pool their investments and participate in syndicated deals in Nova Scotia commercial real estate. Smaller private equity and finance companies are also more likely to do joint ventures and offer the necessary capital to complete the transaction if the deal 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 companies, hedge funds, private REITs, investment organizations, and the list goes on and on are all possible sources of financing.
2. Less Competitive
Most investors target residential property owners from a marketing perspective, 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 common “We Buy Houses” signs on almost every street corner.
Use the same marketing techniques to commercial real estate as previously tackled. You’ll most likely 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 most residential investors yet too little for many institutional investors.
3. Allows “Forced” Appreciation
Residential properties are commonly assessed by comparing them to comparable properties recently sold in the area and have similar qualities. If the “compensations” for a three-bedroom, two-bathroom home in a specific area are about $100,000, your property is most likely to be worth $100,000.
It doesn’t matter if your target property has more features or if your home rents for $900 per month instead of the house down the street that rents for $700 monthly. In the end, your home will be assessed reasonably close to the “compensations” in the neighborhood.
However, in commercial real estate, a property’s value is determined by the amount of money it generates. Now, when it pertains to “How” revenue is valued in terms of capitalization rates, commercial assets are still subject to the “comps” of the area. The general principle is that the more money a property produces, the more valuable it is. Visit Cushman & Wakefield Atlantic Fredericton for more information about commercial real estate.
The worth of a commercial property is inextricably connected to the money it brings in and the overall demand for its services. Therefore, based upon the property’s location and highest and best use, commercial real estate investments can produce a higher return on investment over time than residential ones. This is possibly even more true in this market cycle.