Pros and Cons of Commercial Real Estate Investing

[Tanh Truong]

I'm curious to hear about the pros and cons of Commercial REI from the rockstars out there! Doesn't have to necessarily be commercial vs residential, but more so why Commercial REI was chosen as a vehicle along with the cons you've seen with it.

[Paul Smythe]

I'm certainly not a rockstar, but here's my crack at it:

Pros:
-Commercial allows you to invest at a much larger scale
-Valuation is much simpler than residential because it's all income-driven and logical. If you can push up income even a little, value will increase at 10-15x multiple.
-Stability once you have the tenant is great
-It can also be much more passive with NNN leases, so someone is handling all of the expenses and maintaining your building for you.

Con
-Because of the larger scale, it requires much more capital, which can rule out a lot of investors for most deals.
-Tenant placement and the increased risk that comes with finding a tenant. If you have a long-term lease with a credit tenant, it's extremely valuable. Problem is, if it's only a short-term lease or a higher risk tenant, your valuation is hurt.
-Potential environmental issues if you're in certain types of industrial property.