Most people who want to invest in real estate start off with single family residential properties. They do this because they are more familiar with residential property, and the thought of owning commercial property is scary to the new investor. I know investors who own multiple single family residences. However, because of the high maintenance residential properties require, they can’t enjoy the profits from their investment because they are constantly working on these investments.
One answer to eliminating such problems is investing in commercial real estate. This would include apartment buildings, office buildings, warehouses and the like.
What are the benefits of commercial real estate? First of all, most commercial properties have a greater cash flow than residential properties with the same initial investment. For example, a single family residential rental home may earn you $1,000 per month on a $150,000 investment. That same $150,000 investment could buy you a multi-family rental house with five renters. If each renter pays you $400 per month, your income from this investment is $2,000. That’s an additional $1,000 per month.
Second, commercial properties like the multi-family rental home provide more diversification for the investor/owner. For instance, a commercial property with five renters is not likely to become 100% vacant, therefore the property will continue cash flowing and eliminate you, the investor owner, from having to pay such expenses as monthly mortgage or utilities out of your own pocket.
Lastly, most commercial property can be structured to require minimal expense to the owner. Most residential property owners are responsible for taxes, insurance, pest control, lawn care, etc. A commercial property, such as a warehouse, can be set up with what is called a triple net lease where the tenant is responsible for all expenses. A commercial lease can be structured so that the owner is only responsible for major repairs such as roof or structural.
In other words, commercial property will make you, the investor, more money with a lot less headaches.