You are thinking about buying your first commercial property. What type of property do you decide to buy?
You have seen the value of owning property to improve your future. But what type of commercial residential rental property are you going to buy?
You may not know anything about owning a retail space, warehouse, or restaurant. Most people want to get a residential property as that is what they are most familiar with. What are the things you need to think about? Have you saved money for a down payment and need to get a mortgage? Or enough to buy outright? Are you going to maintain and manage the property yourself or hire a company or people to do that for you? What area are you going to consider?
Some people contemplate starting off in commercial real estate by buying a one- or two-family house. I think this choice has more negatives than positives. I strongly recommend the purchase of a three-family house. Three, but why so much—wouldn’t a one family be easier?
If you buy a one family house you will only have one tenant. If that one tenant becomes problematic, refuses to pay rent, or is always late paying rent, it will cause you stress. So you only have one stream of income and it could be easily interrupted. A two-family house will reduce your risk somewhat because the odds of both tenants not paying rent at the same time are low. If you need to live in the investment property you are buying then you really are only getting income from one unit and then you are in the same predicament as mentioned above.
If you buy a three-family house, you can live in the property and have two streams of income from the two tenants. If one tenant becomes problematic you will still have the other income stream. If you live in one of the units, when you make an improvement to the property you are also improving your living space.
The physical work to maintain a two-family home is the same as a three-family home. In addition, if you live in the building it is very easy to “commute” to the property to collect the rent and monitor the tenants. You will know very quickly if there are major issues with your property and can react to mitigate any long term effects.
The costs of lawyers, accountants, taxes, grounds maintenance, utilities and such are spread across the three units and their subsequent income streams and therefore could be less percentage of the income. This makes a much less risky investment as you should consistently have rent from at least two of the units and when you are not at full occupancy the rent from the occupied units should cover the costs of the property and not extract from your pocket during these times. A three unit rental should give you the least amount of risk and the most amount of income from a first commercial real estate investment.
This is only one of the many ways you can invest in real estate, do you want to learn more? This is one of the many concepts that will be discussed in the soon to be released book The Ten Best Ways To Invest In Commercial Real Estate. What other ways can you invest in commercial real estate? Get this book to find out. Join our blog so you can be the first to get this valuable information.
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