Why WE choose Commercial Real Estate Investing
Commercial Investments typically yield higher returns than Residential. It is most common that people start by building a portfolio of Residential Real Estate before they move into Commercial. The barrier for entry is lower, and the cost is a lot less. However, the smaller the scale the lower the return. That is why our team chooses Commercial Real Estate. The greater the risk, the greater the reward, and we aren’t afraid to get our hands dirty.
Why YOU should choose Commercial Real Estate Investing
Residential Real Estate offers mild returns with more headaches. Your capital often sits longer in those investments, and over time your problems such as vacancy, repairs, or poor management, tend to increase. While those problems hold true for ALL real estate, one vacancy in a Single Family Rental is more significant than one vacancy in Multi Family Rental. As a Limited Partner in Commercial Real Estate, your money sits for less time over all, and it continues to give you a return after you have received your money back. Most importantly, the headaches of managing the asset are not yours, their ours, and we don’t mind taking the blows on your behalf.
Benefits of Commercial Investments vs. Single Family:
Let’s talk about how assets are valued.
Residential: The value of Residential Real Estate is dependent on the comparables in the area.
Commercial: It's important to think of your property as a business. The value of commercial real estate is dependent on the NOI, aka Net Operating Income. This means, you can control how much your property is worth based on how effectively and efficiently your business is run.
Now let’s talk partnering.
Residential: Unless you are buying the property with cash, or some sort of creative financing, there are limits banks will impose on you for partnering in deals. Most banks do not lend to LLCs and they rarely accept “Gift Money” anymore. So you have to have the capital necessary to finance your purchase and be able to prove where it came from with 60-90 days of bank records.
Commercial: Multifamily deals allow investors the ability to co-invest with professionals. This gives YOU, the investor, the ability to mitigate risks by teaming up with experienced partners like us. Banks do not care, but rather encourage teams to finance big deals, because they know there is diversified risk in the investment.
Last but certainly not least, let’s talk taxes.
Residential: Taxes are pretty straight forward. As long as you own your residential portfolio in an LLC, you can claim all the tax benefits you normally would, but there is one benefit you don’t get to take advantage of: cost segregation.
Commercial: With Multifamily property, cost segregation is critical. This is often a factor that can make or break a really good deal. Cost segregation allows us to depreciate the initial repairs, additions, and individual items within the building. This helps us recoup our renovation cost over the long term, but more importantly helps us save money up front to share with YOU the investor.
Here are some important disclaimers.
All investments are risky. Even in real estate, there is always the chance you will lose money in a deal. We do not make any guarantees and we encourage you to perform your own due diligence, seeking the council of third party advisors or professionals. Our team works with both sophisticated and accredited investors. If you are not accredited, it is highly important that you seek education on investments FIRST, before partnering in commercial real estate deals. If we sense this is your first time investing in real estate, or you are ill-prepared to invest with us on commercial deals, we will require you to seek education before hand.