Investing in commercial real estate can be a daunting, and if done incorrectly, very expensive process. The good news is you don’t need years of training to be successful at it. First-time buyers who take the time to do their homework find real estate investing to be financially and personally rewarding. This article gives newbies the practical advice they need before jumping in. First, here are a few differences between residential and commercial real estate (CRE) investments that you should know before buying anything. Commercial properties
-are valued differently. CRE income is directly related to its usable square footage, which isn’t always the case with residential properties.
-often see greater cash flow. On an initial investment basis, the yield is often higher per square foot than in residential. A leased or rented multi-unit commercial property generates more income than a single-family dwelling.
-have longer leases. A longer lease length helps stabilize cash flow.
-help diversify risk. What this means is if, for example, you own an apartment building and you lose one of your ten tenants, only one-tenth of the income for that property is lost. In a single-family house a lost tenant means the entire rent is lost.
-are valued differently by the bank; find one that works with commercial real estate, and know that it will want a higher down payment than with residential investments, usually 30 percent or more.
One important similarity to keep in mind between these two types of property investment is that commercial real estate does go into foreclosure. Banks apply the same methods here as in residential properties. Now that you’re a little more familiar with the ins and outs of commercial real estate, the next step is to do some research. The worst possible thing to do is to jump right into before getting all the facts. It is important to educate yourself as much as possible to keep from making a financial blunder. Read as many books on the subject as you can. Learn the market for your geographic area.
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