5 Best Commercial Real Estate Types for Individual Investors
1.Apartments
- 5 units and greater are considered commercial real estate
Why Invest in Apartments?
- Everyone needs a place to live
- You can generate a large amount of Cash flow
- Force appreciation by increasing rents or reducing expenses
- Apartments produce great tax shelters
- As you make your mortgage payments you reduce your principal and create equity
- You create wealth by increasing your equity and cash flow
- Easiest commercial real estate to get into
SWEETSPOT of Apartments:
- Between $500,000 and $5 million
- Not worth it to go below
- Too much competition above
CONS for Apartment Investing
- If your neighboring developers are building new apartments
- New builds will attract your buildings ability to attract new tenants
- Sometimes people do bad deals
2.Self-Storage
- Self storage are commercial buildings with individual rooms where people store their stuff
- They come in different sizes
- Also include boats and rvs stored
WHY Invest in Self-Storage?
- Same as Apartments but you are missing two things that are to your advantage
- Missing tenants (easy evictions, not labor intensive)
- Missing Toilet Repairs (Less maintenance)
- Creates cash flow
- Force Appreciation
- Experts consider Self-storage economy proof
Sweet Spot of Self Storage
- Buy a large enough self-storage facility to be able to employ a property manager
- Do not do this yourself
Cons of Investing in Self-Storage:
- If the neighborhood has decreased in value your facility might not be desirable
- Location is extremely important
- It can take a while to occupy all of the units
3.Shopping Centers
- Strip centers large or small
- Shopping malls indoors or outdoors
WHY Invest in Shopping Centers?
- Stability
- Most tenants sign a 5-20 year lease
Sweet Spot of Shopping Centers:
- Buy Small, start small, and scale up
Cons of Shopping Centers:
- Capital Intensive
- Need lots of cash
- If a major tenant leaves It can take up to 30% of the income
- You will still have to pay mortgage as you build up for the next tenant
4.Office Buildings
- Single building with one tenant all the way up to a skyscraper that’s 80 floors and dozens of tenants
WHY Do We Invest in Office Buildings?
- When the economy is booming their rents can be astronomical
- Can make a lot of money by holding onto them for a long period of time
Sweet Spot of Investing in Office Buildings:
- Start small, buy an office building with multiple tenants with long term leases
- Cons of Investing in Office Buildings:
- They depend on the economy
- If the economy goes down the office building goes down
5.Mobile Home Parks
- You either own the mobile home park and the tenants bring the mobile home
- You own both the park and the homes and rent out both
- It is better to own only the mobile home park aka dirt because less maintenance and expenses
WHY Invest in Mobile Home Parks
- They produce cash flow
- Affordable housing demand is great
- You won’t see many new ones being built
- Tenants tend to stay a very long time
- Most mobile home parks are seller financed
Sweet Spot of Investing in Mobile Home Parks:
- Buy a mobile home park that is big enough to hire a property manager
Cons of Investing in Mobile Home Parks:
- They have a negative reputation
- Financing for mobile home parks is difficult to get
Conclusion:
Follow One Course Until Successful
- Choose one route to go and stick with it
- Weigh the probability and the size of the investment
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