Real estate is often seen as a more secure investment than the stock market because even though the value of your asset can fluctuate with the market, the asset itself doesn’t cease to exist. However, oftentimes real estate investors opt for the property type they’re already familiar with—residential—without realizing that commercial properties can be a better investment if you’re willing to take the time to learn about this side of the market. Here are four reasons that commercial real estate can be a better investment than residential real estate:

1. The return on investment (ROI) for commercial properties is larger. Although commercial properties cost more upfront than residential properties, the profit margins can be higher, especially if you learn how to turn around underperforming or distressed properties. Also, income streams from retail tenants (and also larger multi-family properties) are much higher than those that can be earned by renting out most residential properties.
2. There are more potential funding sources. Non-traditional (or non-bank) mortgages for residential properties, especially non-owner-occupied ones, can sometimes be difficult to obtain, whereas it is often possible to obtain funds to purchase commercial properties from less traditional sources, such as pooling resources with other commercial investors, creating a joint venture with a small business, getting a loan from a private capital lender (a lender who runs a fund of money from private investors), or other creative options. Many commercial investors actually say they find it easier to secure capital to purchase commercial properties than residential ones even though the latter requires smaller amounts of money.
3. Commercial properties can produce steady streams of income on a larger scale. While many commercial real estate investors choose to “fix and flip” distressed commercial properties in the same way that residential real estate investors do houses, the other option with commercial real estate investment is to choose properties that can produce a steady stream of income for you. This can be done in a variety of ways: purchasing an office building with corporate tenants, revitalizing a retail shopping center, managing a multifamily complex, etc. Any one of these types of income-producing commercial properties would provide you with a steady stream of revenue that would take multitudinous individual residential rental properties to match (and which would require far more time and management).
4. It’s easier to increase the value of a commercial property with rehabilitation projects. Because commercial property appraisals don’t just consider comparable sales the way most residential assessments do, you can increase your property’s value by increasing the income it generates. If your property has vacancies, then you can rehab or refit the unleased units to attract new tenants. If the property is distressed or underperforming, then you can isolate the problems, address them, and increase the revenue. These actions will have a direct effect on the value of your commercial property in ways that a total home renovation may not affect a residential property if the nearby properties can’t support the new value.

If you have questions about using private capital loans to fund your next commercial real estate purchase, contact Montegra at 303-377-4181.