Why Invest in Commercial Properties Instead of Single Family Homes?By Anthony Seruga
While there are many people who seem to believe that investing in residential real estate and single-family homes is the way to go, investing in commercial properties is much better. Instead of focusing your real estate investing on residential properties focusing on commercial properties is a better option for a variety of reasons.
First of all, when it comes to investing in commercial properties, you will not have to worry about personally qualifying for a loan. The property itself qualifies for the loan. You usually will not have to worry about personally guaranteeing the loans when it comes to investing in commercial properties. Non-recourse financing is the type of financing most often used for commercial real estate investing. If your loan is foreclosed on, the bank will take the property, but they can't come after you personally. Also, it will never affect your personal credit score.
You will also have the opportunity to deal with professional tenants when it comes to investing in commercial properties, instead of dealing with the tenants that come with residential properties, which is a huge benefit.
Another reason to invest in commercial real estate is to maximize your potential for profit on any one deal. You would have to invest in a lot of single-family homes to generate the kind of profit you can make on one commercial real estate investment.
So, with the proper education and training, it can be the right move to break into the field of commercial real estate investing.
How Much Money Will You Need?
Before you start purchasing commercial properties, it is important that you know how much money you are going to need to get started. Even though you will be able to get financing for your properties there are still going to be some fees that you are going to have to pay for on your own. So, how much money should you have available? Well, for the pre-closing and closing costs you are going to have to pay, you should have about 3-5% of the amount of the loan available, as well as 10-20% of the purchase price for the down payment. While you may not need that much money, it is best to plan on this amount just in case.
Where to Get the Money
Once you know how much money you will need, you are probably wondering where you can actually get the money. There are a variety of different places that you can get the money you will need. Commercial mortgage brokers are one choice. There are also some private lenders that may be able to provide you with the money that you need, so be sure to consider all of your options.
Using the Money
When you actually are ready to get the loan for your commercial property you will probably have to explain to your lender what you are going to use the money for. This means that you'll need to be able to communicate to the lender what you are going to do with the money. There are several things that you may have to do with the money. You may need to use the money to acquire or purchase the property, and in this case, the lender will probably be able to loan you about 80-90% of the money you will need. In some cases you may need to use the money for a refinance of a property and the same amount will probably be available to you for refinancing as well. You may also need to have the money for construction of the property, including renovations, rehabilitations, and building that occurs on the property.
Keeping Yourself Protected
When you decide to invest in commercial properties, it is important that you keep yourself legally protected. Many people sue over a variety of things in today's world, which means you'll need to have plenty of protection. Be sure that you never own the properties in your own name, or you could be sued personally. You need to have a LLC or a corporation. This way, any lawsuit would be directed at your company and not at you personally.
A Good Team is Important
If you are going to get involved in commercial real estate investing, it is important that you have a good team to work with you. You should begin to form a good team immediately. You can ask for some recommendations from other people who invest in commercial real estate so that you are sure to get good people for your team. Some of the people that you will need to have on your team include a good commercial mortgage broker, a real estate attorney, a real estate accountant, a good insurance agent, a realtor that specializes in commercial real estate, and a company that works in property management.
Finding the Right Properties
One of the most important things when you are involved in commercial real estate is going to be finding the right properties to invest in. The following are several ways that you can find some great commercial properties to invest in.
- Commercial Realtors - One of the best ways to find good commercial properties to invest in is by using commercial realtors. Good realtors who specialize in commercial real estate can help you find the properties you need and they can also help you do your due diligence as well. If you are going to pick an agent, consider interviewing several agents to make sure that you find one that you can work well with. You can get online and go to the National Association of Realtors to find a good realtor or you can get some recommendations from other commercial real estate investors that you know.
- Internet - Another place that you can look for great commercial properties to invest in is on the Internet. There are a variety of different websites that can help you find the properties you are looking for. You will find both paid and free sites; however, for serious investors, going with the pay sites may be the most beneficial for you.
- Networking - Many investors overlook networking when it comes to finding good properties to invest in. There are a variety of networks and investment groups that can help you find great properties. Try getting involved in Chamber of Commerce meetings or get involved in some associations that will help you find the properties you want.
Consider the benefits; getting a non-recourse loan, dealing with professional tenants and the opportunity for much greater profits on any one deal. When you think about it, it is a smart move to choose investing in commercial real estate rather than investing in single-family homes.
Anthony Seruga and Yolly Bishop of Maverick Real Estate Investments, Inc. work with builders, developers and other players in the commercial real estate industry to acquire and develop properties. They use progressive investment strategies that have proved extremely profitable. In addition to their own deals, they teach both seasoned and inexperienced investors how to be big players in the game. Visit the website for more info.
Published at Dec, 12 '07 , Read 2185 times.
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Nice article by Anthony Seruga. I agree with him. The benefits i like best are dealing with professional business owners instead of residential renters and the commercial property qualifies itself as opposed to you as an individual having to financially qualify for it. Seeking tax breaks by showing that your commercial income property brings in less rental income than it really does is a terrible idea especially because when selling or refinancing, it will not qualify itself well for the loan it diserves.
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