If you have experience in residential real estate investing, now is the time to consider moving up to the investing big leagues. While residential real estate is a profitable business, the serious money is made on the commercial side.
Many investors are afraid to make the leap from residential to commercial. They think it's to complicated. While it is different, it's not something to fear. Once you make the change you won't want to go back to residential. Here's the easy way to make the leap.....
A good strategy for moving into the NFL of real estate investing is starting with apartments. Apartment buildings with four units and less are considered a residential investment by the banking community. Banks will require that you personally guarantee any loan you take out. Five units and more are considered a commercial investment. Loans for these properties are almost always nonrecourse, meaning they are only secured by the property. Your personal credit and other assets are not at risk.
Moving up to commercial apartments makes perfect sense if you already have experience with residential properties. All you are really doing is moving up from a few tenants to multiple tenants. However, residential is more hands on than other commercial properties. Most non-residential commercial properties don't have tenants calling with plumbing problems at 2:00 a.m.
When it comes to commercial investing, you need to think about networking. Antiquated—yet effective—if you’re marketing on a budget then it doesn’t get much cheaper than networking. Commercial real estate investors benefit by staying in contact with a network of professionals. Often the best deals are done without the commercial property ever being listed. These are called “pocket listings”. An “in the know” realtor is aware these properties are for sale but they aren’t listed in the MLS. Typically, the seller doesn’t want a bunch of potential but not serious investors constantly touring the operating business. The realtor in the know only brings around the most serious buyers. But because of this arrangement, the property is listed at a nice discount to attract serious buyers.
Besides starting your commercial real estate career in apartments, consider other strong positive cash flow properties such as self-storage, mobile home parks, senior living, and offices. Look for investments that appeal to a wide cross section of renters. Multiuse properties are easier to keep rented out. However, there can be more profit in specialty use properties such as restaurants. But with that comes risk of long periods that that the property sits vacant.
Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for nine years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.