Commercial real estate investing

 I do not write a lot about commercial real estate investing because it is a much more complicated and riskier venture. A comparison of residential and commercial real estate from an investors point of view will illustrate the differences.

Commercial income producing properties can be very lucrative and easy to manage when they are leased up. When they are in decline and not leased up it can be a long, slow, and expensive process to turn them around.

Commercial properties tend to be more expensive, require larger down payments, and the banks require stronger financials from a buyer before they will approve a loan. The bank will want to see five year leases and name brand tenets. Where a house might be vacant for six months and require a rent reduction to get it leased, a commercial property could be vacant for years and require further investment to get it leased.

I have owned, and do own commercial properties. I have made more money off commercial properties then from residential properties. But, I have also had long periods of negative cash flows on them. If you have the resources to stand long term negative cash flows and the assets to enable you to refinance no matter what happens, then by all means proceed.

To make my next million dollars I have gone back to my roots of building a residential rental property fleet. I can get started with very little risk verses the rewards and a just little money. I can use the equity in one property to buy another, and build up a large income stream in a reasonable time frame. Because I am an investor, the bank will still balloon my notes in five years. With residential properties you have more options when it is time to refinance. It is also easier to sell residential properties should the need arise, and that means less rick.

Currently there are bargains galore in commercial real estate, but few loans available and fewer people wanting to lease them during this down economy. If you can figure out a way to make the property cash flow, there is money to be made.

I will look at commercial properties in this current economy, but I will not buy any unless I can be sure that I can cash flow it for at least five years. I will also want to figure a way to make 20% a year at a minimum. Buying at a current 10% cap rate is fairly easy. But then I will need a way to increase the income and or the properties value to get that other 10% a year return. That is the hard part.