Should I start with Commercial Real Estate?

[Vincent J.]

Hi all,

Recently, I’ve been interested in investing in real estate due to the cash flow, equity buildup, appreciation, tax benefits, etc.

I did multiple calculations with conservative numbers for the US Midwest area and came to the conclusion that I am able to cash flow $250-$300 per SFH (mortgage, property manager, taxes, insurance, 10% for vacancies & repairs). Roughly 15%-20% ROI which I am happy with. Repeat the process with dozens of properties and I should have healthy passive income coming in from the rentals. Maybe later I can do a 1031 exchange for an apartment building to grow my passive income even more. The growing population always needs a place to live and land is finite so it makes sense to invest in Residential so far.

However, a buddy of mine told me that investing in Residential is a waste of time for my case and that I should just jump into Commercial Real Estate (strip malls/office buildings/industrial, not apartments). From my understanding, Commercial Real Estate is a "rich man's game" so the barrier of entry might be hard for me unless I aggressively save money. It also seems to me that retail storefronts are a dying breed so looking for a tenant for my units will be even harder (assuming I go with strip malls). I've heard stories that it's not uncommon for some buildings to be vacant for years. The upside is that I can generate more income per month with a commercial building and the ability to execute a NNN lease, which sounds pretty enticing.

I’m still pretty young, but I hope I can buy a decent commercial building ($150K-$300K) with at least a 7-10% cap rate.

Does anybody have any experience with commercial real estate investing? Is it as lucrative as society makes it to be? And how does the future look for commercial real estate in general?

Thank you.