Although residential and commercial properties can both be excellent investments, commercial real estate may be a better option for investors who are willing to undertake a large venture. The perks of investing in commercial real estate in Louisville Kentucky include more impressive ROI, steady monthly cash flow, attractive leasing agreements, and much more. If you are currently investing in residential properties, here are some reasons why you should switch to commercial real estate.
Easier to Obtain Large Sum of Capital
If you are just getting started with commercial real estate investing, you will most likely need a large some of capital. Aside from obtaining money from individual investors, private money lenders, and other traditional financing options, there are not many ways for residential investors to receive even a small amount of capital. On the other hand, as a commercial investor, you can raise a large sum of capital not only by using traditional financing options, but also with the help of hedge funds, investment groups, and private equity firms. Obtaining a lot of capital for your commercial buildings is much easier when you have many financing options from which to choose.
Provides a More Attractive ROI
When you invest in commercial real estate in Louisville Kentucky, you will have the opportunity to earn a generous amount of money each year, which will positively contribute to your overall net worth. As compared to residential properties, commercial real estate provides a better ROI in most situations. The average return of investment for commercial properties is between 6 to 12 percent whereas residential properties like a single family home average between 1 and 4 percent.
Depending on the property, commercial real estate can provide a virtually guarantee ROI. For example, if you invest in a self-storage facility anywhere in the United States, your annual revenue will probably stay the same even when markets drop. Since many people actually end up selling their residence and moving into an apartment when the market drops, you may actually experience an increase in revenue during this period as these such people will need a place to store their important belongings. The good news is that storage facilities may change ownership, but they rarely go out of business, which makes this commercial property an excellent and lucrative investment opportunity.
Allows for Forced Appreciation
When accessing the value of a residential property, the comps of surrounding properties are taken into consideration. Even if you decided to upgrade your home with a gourmet kitchen, swimming pool, and a guest house, you won’t be able to magically place your property on the market at a much higher price than surrounding neighborhood properties. “Forcing” appreciation with residential real estate is virtually impossible.
While the comps are also used to access the value of commercial real estate, the property’s revenue is also considered. For example, if your property has generated a lot of revenue, the value of your commercial property will most likely be high. By finding ways to produce more revenue, you can substantially “force” the appreciation of your commercial building depending on the “cap rates” in your area.
Offers Far Less Competition
Because residential real estate requires a relatively small amount of capital to get started, there is an overwhelming trend toward this type of investing. Not only does commercial real estate require a large sum of start-up capital, investing in properties like office buildings and shopping centers is a huge undertaking, so many investors shy away from this major venture. For experienced investors, commercial real estate offers much opportunity to excel in a undersaturated market.
Guarantees Long-Term Monthly Cash Flow
When compared to residential properties, commercial properties typically come with longer lease agreements. Instead of a lease agreement lasting just one year like many apartment complexes, commercial property tenants generally sign a lease for multiple years. The result of longer lease agreements is usually better returns and more monthly cash flow. If you have a commercial building with many different units, you can also generate multiple streams of revenue.
Get Started With Commercial Real Estate Investing Today
As compared to residential properties, commercial real estate offers far more benefits in the long-term if you are a daring investor. Are you considering switching from residential to commercial real estate investing? Based in Louisville, Kentucky, HOWE Commercial Real Estate prides itself in offering premier consulting services to help you excel in the commercial real estate market. Give us a call at 502-890-4475 if you or someone you know plans on buying, exchanging, selling, leasing, or developing your commercial real estate property. Our experts are more than happy to help you accomplish your commercial real estate goals.