Commercial Real Estate
The Cons
Commercial Real Estate is often more difficult to
get into due to more stringent financing policies
and terms. Typically 25% down is a common required
amount and the investor must have a financial worth
of, or at least near, the value of the investment.
Good credit, along with high debt coverage ratios,
is typically required and underwriters don't give
much thought to potential. Depending on the
uniqueness of the property under consideration, the
appraisal may be difficult to get with a correct
value assessment. Along with being more difficult
for investors to get into, property management also
gets more complicated as business structures and
leases have to be negotiated rather than just set.
The last negative aspect of commercial real estate
is that properties are typically harder to fill upon
vacancy than residential, primarily because many
structures were built for specific purposes with
limited uses.
The Pros
While commercial real estate may be a little more
difficult to get in to, in most cases the rewards
are more valuable than the cost of jumping through
the initial hoops. In many cases lease structures
are long term; while more complicated, they typically
relieve the landlord of more work than in residential
management. Returns have to be higher to cover debt
coverage ratios, so the overall rate of return is
generally in the investor's best interest. Commercial
properties historically average higher capitalization
rates than do residential. Management fees in commercial
real estate are typically much less than those in
residential, meaning that more of the cash flow actually
stays in the investor’s pocket.
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 Residential Real Estate
The Cons
Most people know the cons of residential real estate investment because there are ten critics for every investor. Difficult tenant situations, high management fees, maintenance issues and more frequent vacancies all add up to create problems that can make investors want to steer clear of investment real estate for the rest of their lives.
The Pros
Residential real estate is fairly easy and cheap to get into. There are multiple methods to investing in residential real estate and sweat equity is fairly easy to create. There is a large tenant base to market to, it's easier to fill vacancies and you won’t go bankrupt if you do have one. The owner can control what they offer as amenities, which can bump cash flow and create a higher value for the property as well. Overall, if a person is just looking at getting into real estate investment and doesn’t have a lot of money, residential is typically the place for them to start. Good returns can be found in residential real estate, but guidance from an investment professional is recommended, especially on your first investment. Know what types of problems to expect with each type of property.
Take the next step— contact Axiom.
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