Why Residential Investors Should Consider Going Commercial

Why Residential Investors Should Consider Going Commercial

The majority of our property loans go to investors looking to obtain commercial properties. Residential properties have their attractive points, especially for new investors just getting their feet wet, but commercial property is ultimately where the big money is at. We would encourage you to consider going commercial if all your property investments to date have been in the residential market.

Commercial properties include things like office buildings, multi-family rental properties, mixed-use properties, industrial and warehouse properties, and even retail buildings. They all make attractive investments if you are willing to put your money in for the long term.

As you read about the benefits of investing in commercial property below, bear in mind that Actium Partners does not lend on residential properties. We do not provide fix-and-flip or construction loans, either.

Potentially Bigger Returns

Even though there is money to be made in residential property, commercial property usually offers bigger returns. For starters, commercial leases generally garner a higher price per square foot compared to their residential counterparts. In addition, there may be other opportunities to earn additional income on a commercial deal. The long and short of it is that profit on residential properties is generally limited to rent payments. Commercial properties offer more ways to turn a profit.

Longer Lease Terms

It is not uncommon for our clients to talk about the benefits of longer lease terms on their commercial properties. Where a residential lease usually runs only for a year, a typical commercial lease runs two or three years. Longer lease terms generally mean less turnover. Less turnover translates into a certain measure of income security.

Longer lease terms are one of the reasons hard money lenders are more willing to lend substantial amounts for commercial property projects. The income security commercial leases provide makes it easier to justify the risk.

Triple Net Opportunities

Another good reason for transitioning to commercial property is the opportunity for triple net leasing. If you are not familiar with this term, a triple net lease essentially puts all the financial responsibility for a property on the lessee. The lessee pays monthly rent AND assumes the responsibility for maintenance and repairs, property taxes, and property insurance.

Why would a lessee agree to a triple net lease? Because, in exchange, the lessee is then given almost total control over the property. Meanwhile, all the expenses normally incurred by the property owner go away. Monthly rental payments become pure profit once financing has been paid off.

Fewer Maintenance Costs

One last reason to consider going the commercial route relates to maintenance and repair costs. When you are dealing with residential properties, maintenance and repairs add up quickly. That’s because renters don’t usually make a whole lot of effort to keep properties in good condition. Things are different with commercial property.

Commercial properties are used for business purposes. Lessees have an incentive to take good care of the property because it affects their brands. As a result, property owners have fewer maintenance and repair headaches to deal with. They also have lower costs. That translates into a higher ROI.

If you have been investing mostly in residential real estate thus far, you might want to consider transitioning into the commercial market. Commercial property is generally a better long-term investment with a higher ROI. As for obtaining new properties, we can help you get there.

Actium Partners is a hard money lender based in Salt Lake City. We work with investors throughout Utah and in several other states. If you are looking to go commercial with your future investments, let’s talk.