Commercial Property Investment Advantages – No Clogged Up Toilets!

October 17, 2009

Commercial Real Estate

6283_wpm_hiresCommercial property investing is one way to participate in the game of real estate.  Investing in commercial real estate has some advantages to consider that SFR investors don’t necessarily benefit from.   Some of these advantages are:

  1. Increased Cash Flow: If you are heavily leveraged and your rental home doesn’t have a tenant, you won’t have any income coming in. Unfortunately, you still have to pay not only the mortgage, but also utilities and clean-up costs!  If you own a thirty-unit apartment building, however, you still have the other 28 units paying rents, which should cover any expenses incurred by the two vacancies.
  2. The Manager Deals With the Headaches and the Clogged Up Toilets: Because you have multiple tenants all in one location, you can afford to hire full-time property managers for your multi-unit properties. This means more free time and relaxation for you.
  3. Predictable Cash Flow: Unlike the one-year leases common for homes, commercial tenants are usually locked into your lease for multiple years. In addition to paying the rent, they also pay for the taxes, insurance, and property upkeep, if it’s a NNN lease.
  4. Cash Flow & Property First, Borrower Second : When you buy a single family home, YOU have to qualify for the property personally.  With commercial properties, the lender looks first at the cash flow, then at the condition of the property, and lastly at the borrower’s credit rating.  if you are using private money, your credit might not be considered at all.
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2 Responses to “Commercial Property Investment Advantages – No Clogged Up Toilets!”

  1. Josh Says:

    While some of your points are great as the owner of 30 apartments in 4 properties I have to disagree with the idea that “you can have a manager because you can afford it”. I cant afford it and I am lucky to have 100% occupancy. With property taxes rising and insurance costs through the roof…heat….contingency for repairs and refunds of security etc…. who can afford a manager. Be prepared to run a business if you buy commercial property ….dont believe that its all about the cash flow. Its about strategy and running a business….and that my dear friends means work.

  2. Angella Says:

    Josh,

    I agree with you that depending on the owner and the property location, it is sometimes advantageous to manage the property yourself. And you are right – owning commercial property is like running a business! And it better be preplanned and done right, or you will lose money and your shirt.

    In my blog, I specifically mentioned multiple units “in one location”. I was talking about large apartment complexes, hence my comment about “all in one location”. For those, you definitely need an on-site manager, or your time will be taken up by showing properties, collecting rents, and performing maintenance. And many investors don’t necessarily buy properties in their own state. I’m in CA, and we currently have offers out on multi-unit properties in Texas, Mississippi, and Florida. As far as owning, my partners and I do prefer 100+ unit properties, which makes it much more cost-efficient to have an on-site manager. Same thing for self-storage units – there has to be at least 30,000 sq ft of rentable area, to justify an on-site manager.

    As far as smaller properties that are scattered near where you live, I agree that it could be more profitable to manage them yourself, at least until you build up some cashflow, or until you get too many to handle.

    Personally, I manage my own SFRs and condos if they’re within 400 miles of where I live. That’s right – 400 miles. I manage my own houses as far as Phoenix, even though I live in Southern California.

    Mind you, I use “hard-nose” landlording and I never hear from my tenants once they move in, so it’s not as bad as it sounds. I’ll talk about “hard-nose” landlording in the next few days.

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