5-20 Unit "Sweet Spot" Properties

[Ben Morand]

Hello BP community!

So I currently have yet to purchase my first property, and I wanted to hear some opinions on my preferential strategy. After researching quite a bit, I have come across the niche in which investors seek out 5-20 unit commercial properties for a variety of reasons. First, this market is less concentrated than others. From what I've heard, the vast majority of investors are scared to enter the commercial industry because they feel overwhelmed by its "complexity". On top of this, I've heard that most experienced commercial investors are not looking for such small properties, and would prefer to invest in large multifamily (80-100+ units) to increase their return. This leaves the smaller, 5-20 unit commercial space with less concentration and more opportunity for deals (especially in particular markets around the country).

Beyond this, I also am attracted to the fact that commercial value is based upon NOI and cap rate, rather than on comps, so the value is more in control of the investor and less based on the surrounding properties. From what I've heard, this allows investors to add value without as much rehab to the property (through raising rents, adding in additional revenue-building assets, decreasing expenses, etc.).

However, I do know that is is harder to find quality property management for these sizes of properties, and it is also harder to sell them (due to less demand). Also, commercial loans are also a bit more complicated (at least to me) than residential loans, so I would need to learn much more about how these work before ultimately cracking down on the strategy.

I am curious as to what are your guys' thoughts are on skipping the residential realm and hopping directly into small, multifamily commercial properties? Also if anyone has any advice, tips, or resources, I'd love to hear them if you'd be willing to share.

Thanks everyone!