should I pursue a commercial property as my first deal?

Question

Hey guys, so my mind has been going all over the place lately trying to figure out what is the best strategy for me to start investing. I've been researching commercial and it looks very appealing, should I start taking it more serious actually educate myself in the field, or should I stay with residential?

Thanks for the help!

Lennon Lee · Answer

Juan,

No one but yourself can know the "right" answer to this question. But that being said, I'm going to second what others have already commented and say that you should go with what you know. Hit the books, podcasts, REI meetups, and talk to people that are actively investing in both commercial and residential. Get that education going and you will start noticing what you like and don't like, the challenges that come with each strategy and the opportunities as well.

Not only do you have to decide whether to go invest in residential or commercial but then you have a world of different asset classes and/or investing strategies within those. On the residential side you can go be a wholesaler, do fix and flip, buy and hold, BRRRR, etc. Then on the commercial side you have offices, retail, multifamily, industrial, etc.. And of course each asset type is a whole industry of it's own.

Something else that you need to have in mind before deciding is whether you want to be active, some-what active or passive. Maybe if you just want to be a passive investor you want to consider investing in commercial multifamily with experienced operators and just get a check in the mail every month. On the other hand maybe you want to be super active and build a business flipping houses in your local market. Or maybe you want to do both and invest the proceeds  from the flipping business in large commercial deals as a Limited Partner.

I know this is probably the answer you were NOT looking for but I also know that no one serious enough would be able to answer that questions for you. We just don't have enough info about you, your goals, your market, your strengths and weaknesses, etc.

I would be more than happy to chat further with you and give you my personal advice based on my personal experience.

Best,

Lennon

Brad G. · Answer

I started in commercial and have stayed. I have been tempted by some residential deals from time to time but always talk myself out of it because for me the advantages of TRUE commercial (businesses not multifamily residential) real estate have spoiled me! I now have three 5000 sq ft metal buildings with 6 rental units and they (along with good sense personal finance) have given me financial independance. Consider the types of businesses that will always need physical space - plumbers, elctricians, cabinet makers, mechanics, welders, artisans, small manufacturers, EMS services etc. My advice would be to pretend you are looking for that type of space to rent and see what you can find in your area. That should give you an idea of supply vs demand. Every investor and market is different but that is my experience of the last 12 years.

Gino Barbaro · Answer

@Juan Rubio

Hi Juan

It depends upon your goals and exit strategy.  If you are looking to build a business and a portfolio of cash flowing assets, I would rather start with multifamily.  It is easier to scale and to grow the portfolio.

But if you need some capital to begin investing, wholesaling is always the option many investors choose.  I think most people have the limiting belief that commercial is too difficult and they hold themselves back from even considering it.

Revisit your goals and why you want to invest.  Everyone will tell you the market is hot right now, and that may be true. But once you learn the niche, your education will last a lifetime and you will be able to invest when the market decides to correct.

Amir B. · Answer

@Juan Rubio

I originally wanted to invest in commercial (apartment complex) but quickly learned I wasn't prepared for that. So, I started with SFH. I would NOT recommend commercial as your first deal.

Good luck.

Michael Flight · Answer

Commercial real estate investment (office or retail) can jumping in at the deep end of the pool.  If you have some experience as a tenant (either for office space or with a store) it is a little easier to get started.  Most commercial real estate investments require additional capital from lower leverage levels (65%-75% LTV) to more expenses building out a tenant space.  You also need to be aware of macro economic trends created by the internet which is reducing both the need for office space (WeWork and other co-locating spaces) retail space (Amazon, etc.).  With all that said, commercial can be an excellent, stable investment if the property is well located.  You may have relationships with a tenant or tenants which would create value if you bought a property and could fill it quickly.  Also, the need for high cube distribution space is growing rapidly in many markets.

Juan Rubio · Answer

Thank you for you guys' response

Anthony Dooley · Answer

Go with what you know. If you don't know, learn, then go.

should I pursue a commercial property as my first deal?

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