Benefits of Investing in Commercial Real Estate
7 Advantages of Michigan Commercial Real Estate Investing in Any Market
“In the real estate business, you learn more about people, communities, life, and government than any other profession.”
Why Commercial Real Estate?
Commercial real estate helps you grow your business depending on your goals and needs. Such returns can be greater than with residential income property, and you have more control over the value of a property with commercial real estate.
With a single family rental or even up to a quadplex, the value of the property is mostly determined by other properties like it in the area. With commercial real estate, you can increase the value by adding amenities and charging more for things like washers and dryers in apartment units, covered parking, additional storage, sub-dividing the space to add additional tenants, etc.
Commercial real estate can help take your investing career to the next level.
What is Commercial Real Estate?
Commercial real estate is property that is used to generate income or run a business.
Even a duplex can be considered commercial real estate but you can still finance a duplex, triplex, and quadplex with a residential mortgage unlike an apartment complex or office building which requires commercial financing typically.
What are the Different Types of Commercial Real Estate?
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Multifamily are apartments where more than one family lives.
People always need a place to live and this is an attractive commercial property investment option.
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Office buildings can be an attractive commercial property option especially if you have a business in part of the building.
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There are different types of industrial commercial properties from warehouses to manufacturing.
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This can be for a business you run out of the building or lease to others to run out of your building.
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Many communities are large enough to support multiple hotels for short term stays.
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This can be a combination of any of the above types of commercial properties like retail on the ground floor with residential apartments above.
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Farmland and other land for commercial purposes.
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Special purpose properties include bowling alleys, parking lots, theaters, zoos, etc.
What are the Advantages of Commercial Real Estate?
1. One advantage of commercial real estate is you can control the value of the property more than you can with typical residential income properties by adding amenities and charging more for them.
2. Another advantage is seller financing may be easier to get than with residential income properties because the sellers are more sophisticated than a typical landlord and more familiar with seller financing options.
3. Finding investors may be easier with commercial real estate because the returns can be greater than with residential income properties.
4. Financing of commercial properties is based more on the cashflow or income from the property than the credit of the investor(s).
5. Many times the loans for commercial properties are non-recourse and the property secures the loan and not the investor(s) personally.
6. There are less investors investing in commercial real estate than residential income properties because it generally requires more knowledge and greater access to capital.
7. It is easier to scale your investment business up because the value and returns are greater with commercial real estate.
What are the Disadvantages of Commercial Real Estate?
• Requires more specialized knowledge to invest like how to value commercial properties.
• Doing your due diligence well is more involved with rent rolls, environmental studies, engineering studies, income projections, tax return review, and doing your due diligence well is key to your success.
• Requires more capital to get started.
• Selling a commercial property can take longer than a residential income property.
• Greater regulation in general than with residential income properties.
• Higher cost to renovate commercial properties than residential properties.
What are the Financing Considerations for Commercial Real Estate?
• Commercial lending is done with investors that have a business entity or partnership and not with individuals, so decide on the entity you want to use.
• Joint venturing can also be done between investors to get lending to avoid a partnership agreement.
• Pooling passive investors together that are accredited investors (hyperlink a description of an accredited investor) through a syndication is another financing possibility to get funding for commercial properties.
• Self funding is always an option.
• Seller financing is always a possibility in commercial real estate.
• Hard money lenders can also help you buy commercial real estate for higher rates and fees and usually for short periods of time.
• Banks and commercial lenders are in the business of helping investors buy commercial real estate and are important partners.
How Can a Real Estate Professional Add Value Investing in Commercial Real Estate?
A real estate professional is invaluable in commercial real estate investing for the following reasons:
• Locating commercial properties
• Knowing the local market
• Advising on highest and best use of the property
• Negotiating the best price and terms
• Understanding and helping follow through on the due diligence process
• Knowing competent professionals that can help with the due diligence, financing, and management.
• Help identify potential tenant sources for the commercial property
How Can Commercial Real Estate Take Your Investing to the Next Level in Michigan?
Commercial real estate offers the investor the ability to increase the value more than with residential income property because you can add value with more services and charge more for those services and amenities.
There are many additional advantages to commercial real estate investing. The returns can be greater. Passive investor interest can be greater because of the higher returns. It is easier to scale your investing business up because the returns are greater. Finally, a real estate professional is invaluable in finding commercial properties, helping with the due diligence, and negotiating the best price and terms.
Want to learn more? Contact us.
Disclaimer:
Always speak to your CPA, investment advisor and attorney before making any investment decisions. Past performance does not guarantee future returns. Arbor Advising seeks to educate and does not endorse any specific product, service or investment.
