Nothing is for sure, but to investors such as yourself, it’s crucial to secure your future even if you don’t know what lies ahead. Many experts would agree that investing in real estate is an excellent way to ensure that you’ll be able to build equity for the future. It may not be immune to the market fluctuations, but with well-chosen assets, real estate can provide a layer of protection that stocks couldn’t.
Real Estate: The Best Financial Investment
Real estate is full of opportunities to make money! With the right decisions, you can set yourself up for life. Through rental income, appreciation, and generated profits by business activities, you can make a substantial amount of money without doing much.
By investing in real estate, you can enjoy passive income, stable cash flow, tax advantages, diversification, and leverage. Unlike with a 401(k), where everything you’ve poured into the account could disappear if the market crashes, real estate properties just stay where they are.
The money in your 401(k) that runs the risk of you losing everything, but your real estate property simply stays rooted on the ground. You may have to wait for some time to sell it or adjust your tenants’ rents, but it’s physically there.
However, even though investing in real estate can support your future growth, you won’t be able to enjoy the benefits of your investment if you put your money in the wrong assets.
Scaling to Commercial Investments
Many investors invest in residential real estate, but a great majority of them are never satisfied with their portfolios for long. As such, they scale and add more units by switching to commercial properties. Some investors start with residential multifamily first, with plans to move up to a commercial property.
Scaling to commercial investments is a good idea, but it’s not as easy as it sounds. Leaping residential to commercial involves a lot of risks and challenges. Selling an apartment building is difficult as it is—what more if you intend to scale into commercial apartments?
To ensure that you make little to no mistakes in the process of scaling to commercial, you need to recognize the critical differences between residential and commercial. With this knowledge, you’ll be able to prepare and position yourself accordingly and succeed in your endeavor.
Predictability
The scale is perhaps the most notable difference between residential and commercial apartments. Residential properties are two to four units, while commercial is five and above. The more units you have, the easier it will be to predict and anticipate monthly income expenses.
With a two-unit property, one major expense can significantly impact your cash flow for the year, but if you have a 100-unit property, one person moving out won’t create a dent in your occupancy, operations, or projections. Thanks to the predictability of commercial apartments, you can make better financial projections and reduce the risk of the unknown.
Sophistication
Buying residential properties is easier because you won’t run out of owners motivated to sell. If you’re lucky enough, you may come across an inexperienced real estate agent who has to underprice a deal. However, you won’t be able to experience this with commercial real estate.
Owners who sell apartment buildings are already successful enough, so they aren’t as desperate to make a sale. If you want to buy an apartment building, you have to establish credibility with brokers, owners, and other industry professionals.
Valuation
The value of residential properties heavily depends on the homes located in the same area similar in size, condition, and features. So, if your neighbor doesn’t maximize their value or sells their property at a discount, it will significantly impact your valuation.
When it comes to selling apartment buildings, their selling prices are based on their generated profits. With this, you’ll have more control over its value, and you’ll be able to increase revenue and manage expenses.
Conclusion
As residential properties become less attractive, it’s understandable that you’d want to scale to commercial real estate instead. Make sure to keep these differences in mind to find the right commercial property and eventually sell the apartment building at a great price.
Do you have plans to buy or sell an apartment building? Then, let our team at Buying Apartment Buildings do the job for you! We have helped many multi-family landlords sell multi-family properties quickly and efficiently without having to deal with costly repairs or paying huge commission fees. Call us at 1 888-799-7915 to learn more!