How Many Oz Of Formula For A 6 Month Old Should You Invest in Residential Or Commercial Properties?

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Should You Invest in Residential Or Commercial Properties?

Most people in Northern CA started investing in real estate by buying their own home. And most have made money as Northern Canadian real estate values ​​have continued to rise. So when they move up, they decide to rent out their first homes. And then they acquire a few more homes. They know they have negative cash flow, but they are making a profit because of the appreciation. This is a typical story of how most real estate investors invest in residential real estate. So far, luck has been on their side.

As interest rates have gradually increased over the past 12-24 months, while Bay Area rents have remained very low, the negative cash flow gap is widening. The risk increases when investing in residential real estate. The same old investment formula may no longer work. At best, investors can still make money, but not as much in percentage terms, since the value of the property is already quite high. At worst, investors may lose money as residential real estate may remain flat or even fall. Is There a Solution for Northern CA Real Estate Investors? Of course, these investors can use the same old formula in a new area that has the potential for value. So the key is to find that new area. They just need to talk to someone who knows this new area. It could be Bakersfield or Sacramento or Fresno. As an alternative, investors can invest in commercial premises: commercial premises, shopping centers, buildings of medical institutions. We’re just exploring this paradigm shift to see if it makes investment sense.

1. Income: commercial properties generate 50-200% more rental income compared to residential properties in the Bay Area. In addition, there is no rent control for commercial premises. So landlords can charge your tenants as much as the market will allow.

2. Leases: in general, commercial real estate leases are more favorable to the landlord than residential leases. In addition to the base rent, tenants must also pay the landlord property taxes, insurance and all maintenance costs. These leases are called Triple Net or NNN leases. Because of these types of leases, commercial properties are better maintained than residential properties. Moreover, NNN leases take a lot of risk away from the landlord because maintenance costs are unpredictable. On the other hand, landlords tend to postpone maintenance of residential properties to reduce costs. Consequently, deferred maintenance has a negative impact on property value.

3. Better tenants: tenants of commercial premises are financially stronger. They could be Walmart or Home Depot with billions of dollars in the bank. They are less likely to nickel and dim with you. In addition, they also provide leasing with their property. If they have to vacate the property for some unforeseen reason, they will continue to pay rent or find another tenant to sublet it. They are also motivated to keep your property in good condition to attract their customers to their stores. While most residential tenants are good, some think that once they’ve paid their rent they have permission to trash your property and then disappear without a forwarding address!

4. Long-term rental: commercial tenants move less often. They often sign 5-10 year leases. Tenants like Walgreens and Walmart sometimes sign leases of 20 to 50 years. In contrast, residential leases are short-term. They could move a mile away to get a $25 rent discount! It is a fact that residential tenants have a very high turnover rate compared to commercial tenants. As a landlord, this will cause you more unnecessary migraine headaches and stress.

5. Management: A shopping center with 10 tenants is much easier to manage than 10 private houses in 10 different locations. In fact, if you have 10 rental units, your tenants are most likely exhausted, and we are exhausted. They often move out in the summer just when you want to go on vacation. Yes, it is a fact that residential real estate is very management intensive due to the high turnover rate. If you have to hire a property manager, housing management will also cost more as a percentage of the rent. Besides, it’s probably a full-time job just managing those 10 property managers!

6. Income declarations: A 10-unit strip mall is much easier to manage than renting 10 separate residences in multiple states. You only need one file for a shopping mall, while 10 folders are needed for 10 rental properties. The task becomes more difficult because the IRS requires you to keep records for several years. Your out-of-state income tax return will also be thinner for a 10-unit strip mall than 10 rental apartments.

7. Deduction of taxes: commercial properties offer the same tax write-off, 1031 exchange as residential rentals.

8. Impact of Credit Score: What most people don’t know is that once they have about 10 home loans, their credit scores start to drop. The credit bureau reasons that the more money you borrow, the higher the credit risk, and 9-10 mortgages seems to be the threshold. On the other hand, commercial mortgages do not negatively affect your credit score because these mortgages are not reported to the three credit bureaus.

9. Pride of Ownership: most businesses are referred to by name rather than address, such as Lion Plaza or Valley Fair Shopping Center. These can be trophies that provide immense pride of ownership. You get a lot of respect by telling people that you have a certain mall that they know.

10. Amount of investment: commercial real estate often requires a significant amount of money, so it is not for people with a modest amount of money.

So if you want to work hard for your money or bet on appreciation, invest in residential properties. If you want to work smart, look for commercial premises. Investing in commercial real estate is a more sensible way to invest in real estate if you have more equity to put down. You have a strong positive cash flow every month, so you don’t have to rely on recognition alone to make money. So if you haven’t invested in commercial real estate, now you know why you’re not among the elite group of real estate investors. You’re probably wondering where you should go from here if you want to explore this option further. These topics will be discussed in the following issues

o Which commercial property should you invest in?

o Where should you invest in commercial real estate?

o How to pick and choose a good commercial property

o What you should know before hiring a property management company

If you can’t wait for these articles, you can sign up for a free seminar on commercial real estate investing at Transmercial. The San Jose Real Estate Investor Club (phone number 408-264-3198) occasionally offers a similar seminar for a small fee.

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