See, I’ve done both. And to be honest with you, there are pros and cons with each. I do invest in some residential arenas, but far fewer than in commercial because when it comes right down to it, commercial smokes residential. For many reasons…
- Residential is WAY more competitive.
There are way more investors fighting over the same inventory in each market. There’s no greater war cry in the residential investing world than, “I can’t find any good deals.”
In commercial, it’s an ocean of opportunity. A wide open playing field.
What would you rather do… a flip on a single family home for $5,000 profit… or put together a commercial deal without ever having to buy, sell, or fund it… and collect $50,000 plus fees and a back-end piece of the action?
- Residential investors are shackled at the ankles with federal rules and regulations.
RESPA, Dodd-Frank, Departments of Real Estate, Creditworthiness, Banking temperament. All of which are more likely to kill deals than they are to approve them. One slip or false move and you’re under their microscope.
With commercial, there are NONE of these restrictions. There’s more freedom, more latitude, and more ways to deals.
- It’s much easier to raise capital for commercial deals than for residential ones.
Why? This is where the ‘big boys’ play. Much bigger payoff, way less hassle.
Plus the sources of capital for commercial are an ocean compared to the residential pond where “moms n’ pops” invest. Because, let’s be honest, they only have so much money to invest.
- Residential is a much more hostile environment.
Banks don’t want to lend to residential investors. Banks require a full body cavity search: superior credit (which few Americans have today), tax returns, disclaimers, and personal liability for loans.
With commercial, you can get non-recourse loans, which means no personal liability. Fewer restrictions, greater deal structuring opportunities.
Very few residential investors create wealth or get rich buying single family homes. It’s like trying to catch flies in a bird cage.
One commercial deal can set you up financially for years, or even for life.
- The belief that residential investing involves less hassle, less time invested, and less paperwork is flat out WRONG!
Dead wrong. A flip on a single family home typically takes 6 months, from acquisition to rehabbing to marketing to selling. Plus your purchase funds AND your rehab funds are tied up for the full 6 months, limiting your ability to do lots of deals.
And here’s something else to add to the mix: flipping and wholesaling is currently under intense scrutiny by federal and state regulators and jurisdictions across the country. The future of each is uncertain.
Commercial is non-regulated, and therefore the ability to fund and close deals is much easier and more flexible. There’s no ‘babysitting’. The amount of effort and paperwork is about the same, minus the hassle for a much greater payoff.
This whole ‘Residential Investing is Better and Easier than Commercial Investing’ is a misleading and toxic mantra that has seeped into the public consciousness for some time now.
And investors all over the country have drunk the “residential real estate investing Kool-Aid”.
Once they find out the truth, though… that residential investing can be a chronic headache and very difficult to scale… it’s either too late or they quit altogether.
But you know what? This is a good thing. Because it spells greater opportunity for YOU!