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Is Switching from Residential to Commercial Real Estate Investment Beneficial?

April 30, 2017

 

The stock market which attracts lots of investors has some inherent uncertainties which if not well managed, can easily erode your invested assets. One of the ways of managing the swings of the bourse is to invest in the real estate market which over time has proven to be a much more secure and reliable investment niche.

 

This is not to say that the real estate is not affected by fluctuations in market prices. What is incontestable is that the tangibility of this market provides you with an extra layer of protection which you can’t get with stocks.

In the real estate market, you may decide to invest in residential or commercial properties. For some time, the decision on where to invest has boggled the mind of many investors particularly beginners in the real estate market. While both commercial and residential investments are worthwhile based on their returns, commercial real estate investment tend to be more lucrative.

 

Much Easier to Secure Investment Capital

 

Every investor is after a return on their investment. The size of this return and its likelihood is what differs. Commercial real estate properties have been found to yield a significantly higher amount of extra annual income compared to residential investments.

 

This is because securing large amounts of capital to invest in a commercial deal is much easier compared to residential investments. Commercial real estate investors pool their capital resources thus making it attractive even for financial companies and other small firms to enter into joint ventures with them. On the other hand, residential investors are quite limited to private lenders and traditional modes of financing.

 

Guaranteed  Return

 

There is nothing certain in life, but there is some level of confidence in some investments compared to others. For instance, in commercial real estate, the nature of business done in your property can determine the extent to which your income is guaranteed. For instance, if your property investment is in the self-storage industry, you can be assured that your revenue doesn’t move with the market. When the market drops, your property will still support business season in season out.

 

The reason behind this is that self-storage facilities in the United States are plenty and this gives you amazing opportunities to invest. Interestingly, a drop in the market can enhance your revenue because most people undergo foreclosure, downsize to apartments, and even sell their homes. This means the demand for storage facilities increases.

 

The exciting thing with storage facilities is that the entire property is custom-built to serve the needs of the industry irrespective of how many times it changes hands. Due to the demand for storage facilities, the risk of having a vacant property is very low.

 

Commercial Property Value Can Be Enhanced

The value of residential properties is largely determined by the average computations of the surrounding properties. This means even if you have renovated your home, its value my still be comparatively low depending on your locality.

 

 

On the other hand, commercial real estate is much more sensible in its valuation approach and assessment even though it also considers the local comps. The overall value of commercial real estate property is determined by the revenue generated. The higher the revenue the property generates, the higher its value. If you can find ways to enhance the revenue, then you are guaranteed of a property that will appreciate.

 

The Bottom Line

Despite the clear advantage commercial real estate investment has over residential properties, there is need for due diligence before you jump over into an investment. There are lots of mistakes beginner investors make and this is why it pays to partner with an experienced real estate investors such as  Realty Guru LLC who have decades of experience and understand the ins and outs of the market.

 

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