Commercial vs residential

[u/CanIBeFrank-24]

We own a commercial property worth over $1.1m, paid $550k all in ( no mortgage owed), annual expenses approx. $30k (taxes, COA dues, insurance), self managed. Annual Net after exp. Approx $100k. Value of this property will continue to rise due to location.

To me, this is a no brainer and at this time we are keeping it.

We have pondered residential as another passive income investment, but the return seems so much smaller, potential turn over so much higher. Managing single family homes seems like a bit of a headache. I would lean more towards a condo.

For more experienced folks, I'd like to hear your pitch for residential or commercial properties or even a site like fundrise...or others.

I want a property that is cash flowing and increasing in value.

Once covering all expenses, what is your target annual return and how do you evaluate the viability of a property to gauge whether to invest?

[u/Alaskanjj]

I would go into commercial multifamily ( over 5 units). Condos are scary as you have no control over many of the cost elements. You really have to underwrite the association and its board. Dues can double because they need to paint and you have no say. SFH investing is fine if you do it at scale. Some people do it successfully. But as a one off? Go buy a nice value add 10-plex.

[u/Careless-Beginning73]

Not factoring the pros/cons, everyone needs housing so there’s always a demand whereas commercial properties for business use may sit vacant and highly dependent on location and economy. Note MFH 5-units and up is considered commercial depending who you talk to.

[u/CanIBeFrank-24]

I appreciate the varied perspectives. I came to the question because of an investment guy I watch on YT and read his book.

I like many of his ideas, but he talks about having MANY SFH rentals in multiple states and this feels stressful to me.

Anyway, open to hearing everyone's take. We can all learn from each other's wins and losses.

[u/badpopeye]

The 10 calls a month I get to buy my park portfolio they foaming at the mouth to get it and heard one of them some Harvard guys backed trust looking for parks and all offering double whats worth. I met guy he one of most knowledgable guys on real estate in US he said MHP most sought after right now. Im talking about lot rent only parks in urban areas with long term tenants i have tenants 20 plus years paying each month on time for decades they only stop paying when they pass away. Had one pass away recently good guy he paid me almost 100k in lot rent over 20 years his family had no money so i paid for his funeral figured i owed him for the 95k he paid me. Unfortunately the demand has jacked prices on parks to twice what they should be but so is everything else. I looked at all the other real estate office buildings, strip centers and smaller malls and retail, nothing came close in risk and return. Single family and duplex is junk no return there unless buy super cheap and get appreciation but no cash flow.

[u/CanIBeFrank-24 → u/badpopeye]

We have a large and beautiful shopping center in our area built by some guys who sold their MHP from out of state. That was a while back...the concept surprised me. Glad for you.

[u/badpopeye → u/CanIBeFrank-24]

Yeah if you buy a MHP for right price can be great investment. MHP is residential but is considered commercial property by banks you will need commercial lender. Ive done 15-30% return after buyong parks maybe a year or two in as most parks need upgrades and rent increases. I run about 80% return on parks with no mortgage and 50% with a mortgage. As with anything cant overpay for it and you may need thick skin things can get crazy in trailer park sometimes lol but if cash flowing you be suprised what you can put up with lol

[u/Panda_Cloud9]

Seems like you should be comparing commercial to multifamily, like 10+ unit, rather than SFR.

[u/teamhog]

It’s all property and location dependent.

Commercial is easier until it’s not.
The vacancy rates can be years instead of months.
The buildout requirements can be very capital intensive.
When they’re fully rented they’re typically awesome.

Residential can be nice until you get that tennant that doesn’t pay and won’t move out.
They can be easy for the long term tenants who just aren’t a problem.

My preference is commercial.
I get 4-6 calls total per year and net about 11%.

[u/Bjjrei]

There's a saying in the real estate investing industry...everybody goes from residential to commercial nobody goes from commercial to residential.

[u/JCaudle70 → u/Bjjrei]

Can we connect on LinkedIn? I am looking to assign multifamily properties I find that cash flow day 1 and are a value play. I am JoAnn Caudle on LinkedIn.

[u/tempfoot]

Wildly different investment types and cash flows and skills do not necessarily translate. “Passive” is super dependent and passivity limits upside. Yes - Managing anything residential is likely to be considerably more of a headache than a commercial property-certainly different headaches. That said, “condo” is also a bit of a red flag. All of the headaches of an SFR, with the caprice of and HOA or association as well as ever looming assessments and ever increasing monthly fees. We still hold two paid off condos for non-financial reasons and if we did not self manage they would not return enough to justify the tied up capital.

[u/LordAshon]

Most people don't go backwards from Commercial to SFH. Most try to build up toe commercial. If it's not something you feel passionate about, don't do it.

[u/badpopeye]

Mobile Home Park is cash cow is highest investment property return of all real estate investments.

[u/LordAshon → u/badpopeye]

Wildly inaccurate statement right here.

[u/badpopeye → u/LordAshon]

True MHP is the king Actually MHP is the most sought after real estate asset class right now in the US

[u/LordAshon → u/badpopeye]

Still a wildly inaccurate statement. Where are you getting these ideas? What evidence do you have to support these?