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"Single family homes are what is selling. It’s where you need to stay."
My Real Estate Agent may be wise but he is definitely not on the same page as I am.
After reading this article by Ken, I’m absolutely convinced that moving into commercial real estate is a must. Not only for the large amount of monthly cash-flow that can be gained but leveraging the rents.
It occurred to me that there are two ways to increase the value of commercial real estate. There is normal appreciation of the land that is purchased. In addition, there’s the increase in cash flow of a property that adds to the value of the property. I’m speaking here of raising the rents. This, above all else, is what can generate serious money for investors.
A definite plus in dealing with commercial real estate is only investors operate in this realm. Residential customers seem to make decisions based on how good the salsa is at the local McDonalds.
Investors don’t turn down an good investment because they don’t like the color on the walls. This was the case with Strange Man’s client from last Sunday.
"I don’t like this blue. Can you show me something different?"
You are right. Single family homes especially in CA and other bubblezones are what is overpriced. People are willing to pay extra to own their own home and to ridiculous levels in some areas so that rents won’t cover costs of buying and owning. Downsides are larger downpayments, higher interest rates, and CGT compared to owner occupied housing. And apart from storage units and the like typical a large minimum size without partnering up with others.
I continue to support anything that leads to a perception leading to lower prices for me me me me me!!!
http://money.cnn.com/2006/10/26/news/economy/newhomes/index.htm?postversion=2006102616
Err….
Isn’t it a little late in the game to attempt the switch to commercial? I’m not knocking what you are doing, but, with the housing market being what it is, do you TRULY believe you are going to make any money from this?
I’ve read most of what you’ve written and there’s a lot of “experience profit” and “dollar loss” in your plan.
Actually, here’s the truth as I know it. Commercial properties do not appreciate. Period. Their values are derived from their incomes. There are rare exceptions, say with a closed car wash here locally, where the land values have out-paced the income produced by the car wash itself. The highest and best use of that property is most likely as retail now.
X, you absolutely kill me. Are you now planning on buying a new home? While building new homes are down, sales of existing homes are up for the second month in a row. And when the fed drops the interest rate next spring, home sales will continue to climb. But Florida may be a good place for you to buy. I read an article that property values are taking a pound due to (1) overbuild (2) hurricanes. But it doesn’t matter. Articles published yesterday showed that rents are sky-rocketing around the country. All I can say is “Keep renting buddy!” Us landlords definitely appreciate it.
Stan, I never stated I was going to move into commercial real estate today. And it probably won’t happen tomorrow either. I’m working on formulating a long term investment strategy. The point of the article was that I don’t want to stay in residential for my entire investing life. I want to invest in multiple areas, residential AND commercial. I realize now I should have stated that in the article.
Trisha, The dirt that the commercial property never appreciates? I’m not an expert but I find that hard to believe. Well, it’s of no consequence. Raising rents definitely increases it’s value. I guess what I’m looking at is 3% increase in rents can raise a property value by 5%. It’s all about leverage once again. That really appeals to me.
And Retail commercial property is a nice avenue to pursue. I’ve talked to several investors that have retail commercial property and they love it. The only thing they despise is signing contracts with corporations. If the business disappears and the lease is broken, they have no real recourse to get the rent they’re owed. One aspect they do like is their ” business tenants” tend to take care of their own problems right away. Burned out lights, plumbering, etc. Residential renters typically contact their landlord and let problems fester.
It’s really going to depend on location whether commercial property appreciates. Maybe not in Oklahoma City. I own shares in the TIAA Real Estate Fund and follow closely their transactions. Some building they end up selling at a loss, but there is plenty of capital appreciation in the annual return.
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