What type of real estate should I invest in?

Question

Hi everyone, I’ve spent the last year really trying to understand the world of commercial real estate investing, and I now have some capital to invest.
The only thing holding me back at this point is deciding what type of RE to get into. I’ve specifically been looking at multi-family, mobile home parks, and self storage. I hear a lot of people say “it depends on the person”, but what does it depend on? I hear a lot of pros and cons about all 3, and everyone says not to dabble in more than one type until you’ve mastered a category. So any advice on how to make the best decision would be much appreciated!

Jack Martin · Answer

Dallin, as you do research and connect with people who have experience in each of those asset classes, you will find compelling support for all of them.  Obviously, those who have a favorite asset class will be more bullish on one than the others, so keep that in mind.

Personally, I focus on mobile home parks, and although I have acquired thousands of properties across several other asset classes, the reason why I narrowed my focus to MHP is due their intrinsic recession resistant behavior.  In addition to that behavior, if you look at what is happening across the asset class, new mobile home parks are rarely built, yet older parks are being knocked over and redeveloped into something else.  This dynamic is causing a shrinking supply of the most affordable housing solution in America, at a time when the demand for affordability has never been higher. That demand is extremely attractive to investors and owners of parks.

Roni E. · Answer

I would check out Joe Fairless book on apartment syndication and Michael blank sda course. Paul Moore has a lot of info. On mobile home parks. For self storage checkout Ben lapidus on self storage. I would also make sure you are an acreditted investor as a good of deals are 506c but there are 506b deals out there.

Chris Levarek · Answer

@Dallin Huso There are many books written on the subject so it would be hard to go full in-depth on all the pros and cons of each. There are alot of investors who have done this research and created expertise, so you can align with a few on the chosen subject and go all in on their content.

To simplify however, when it comes to investing into commercial assets or anything for that matter, it breaks down:

• What is the return on investment?
• How reliable is that return in a downturn or economic crisis? Or what is the risk I am willing to take?
• How strong is the current and future demand for the asset class?
• How does this asset class align with my growth and interests?

The only reason it depends on the person, is we all can think differently on risk, returns and our own interests of course.

So even if I gave an opinion, many investors would disagree on which asset class I choose simply because they value those criteria differently. When you value things differently, you find supporting arguments to validate your case.

However! Some common reasons I chose Multifamily :

Multifamily

• Affordable housing is in high demand. Always a shortage
• Rising populations in sectors such as Immigration, Millenials and Baby Boomer generations suggest ever-increasing demand in future.
• Reliable secure returns when purchased/managed correctly.
• Easy to understand fundamentals.
• Value-add options are easy to implement.
• Economies of scale = 1 roof, expenses can be shared among tenants and savings made.
• Multiple sources of income = Decreased risk in case of vacancy due to multiple tenants paying. Think single-family, 1 tenant = 1 source of income.

Hopefully that helps in some degree!

Lance Langenhoven · Answer

Without knowing how much capital you have to invest it's tricky to answer. If it means you can only invest in one of those categories as a minority owner I'd try to get more capital together first unless you can find a small enough deal for you to do by yourself or where you're the majority owner.

As to the three options you listed, I'd pick the self-storage option simply because you don't have people sleeping on the property. More people = more problems.

I would add a fourth option that you might want to consider and that's boat & rv storage. It's cheaper to build than self-storage and a lot easier to manage. It doesn't have as high a rental income as self-storage but the consistency of the tenants and the lack of hassle makes it very attractive for many.

Marlen Weber · Answer

Hi @Dallin Huso, Have you considered passive investing in multifamily?