Commercial vs. Residential Real Estate

Leveraging, renting vs owning, making an investment or buying a home?
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henrichard
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Commercial vs. Residential Real Estate

Post by henrichard » 08 Aug 2016 12:20

Which is more profitable in the long run? Commercial or residential real estate? Is single residential houses better to rent than multi-family apartment complexes?

Just a Guy
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Re: Commercial vs. Residential Real Estate

Post by Just a Guy » 09 Aug 2016 09:31

It depends on so many variables, it's virtually impossible to answer. If the economy changes, the location is poor, what the condition of the property is, what kind of tenants you have...

Personally, I look at a cost per door (or maybe bedroom) basis and figure out how much money I can charge in a poor economy (worst case scenario). Many times an apartment can look attractive, but then you can also have too many eggs in one basket and have a larger downside if the economy goes south and you get a lot of vacancies.

Of course, if you're looking for capital gains, single family houses tend to appreciate on a steady basis, whereas commercial doesn't tend to appreciate as quickly.

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kcowan
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Re: Commercial vs. Residential Real Estate

Post by kcowan » 09 Aug 2016 10:05

One of my friends made a bundle buying old large houses in Rosedale and environs and turned them into rooming houses. He was a slum landlord and, after 20 years, sold them off as SFH because the neighborhood had turned back desirable. For every success story, there are probably a few failures when fully costed.

The main thing is not to get a personal connection to the property but keep it as a strictly business investment. My aunt was in real estate and she made over $2 million buying and flipping SFH in The Beach after renting them for a few years.
For the fun of it...Keith

henrichard
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Re: Commercial vs. Residential Real Estate

Post by henrichard » 09 Aug 2016 14:02

I'm thinking more in the long term. I don't plan to buy and sell property on a regular basis. I'm thinking more of holding on to them. I'm also concerned with the financial aspect of this business. any ideas?

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FinEcon
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Re: Commercial vs. Residential Real Estate

Post by FinEcon » 09 Aug 2016 14:42

henrichard wrote:I'm thinking more in the long term. I don't plan to buy and sell property on a regular basis. I'm thinking more of holding on to them. I'm also concerned with the financial aspect of this business. any ideas?
From a value perspective, you couldn't have picked a worse time in recent history to consider the real estate game. Valuations, for all typical types of residential and commercial property, are stretched to the max in most desirable markets. Doesn't mean there aren't deals ot there, it just means most buyers are buying at a generational low cap rates and there's no reason to assume a know nothing newbie will find the deal (or even know one when they find it) over established savvy market participants. Another annoying industry dynamic is that institutional money is reaching further down and further out so there is less and less space for the smaller guys to play in. No problem if you are looking to aquire property in Medicine Hat but its tough going in any major Canadian CMA.

The real question you need to ask yourself is: am I willing to spend 500-1000 hours over the next 3-6 years reading and learning this game? If the naswer is no, or I don't like to read, then this game is not for you. Here's a basic one thats an easy read and a good start:

https://www.amazon.ca/Investing-Real-Es ... real+state
What the human being is best at doing is interpreting all new information so that their prior conclusions remain intact

-- Warren Buffett

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AltaRed
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Re: Commercial vs. Residential Real Estate

Post by AltaRed » 09 Aug 2016 14:59

Agree with FinEcon. I believe persistently low interest rates, with no material increases foreseen on the near term horizon, have skewed markets. Fixed income investors, whether retail or institutional, have fled the fixed income markets and have driven up equity and real estate prices above historical norms. Are we in a long term low interest rate (structural) environment, aka years, if not decades? Or will this too pass within the next 5 years? If I knew, I'd have a yacht at the end of this cycle.

I think if you see the banks suddenly offering 20 yr mortgage terms at 3-4%, you may be on to something.
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