Real estate investor, developer, and consultant Sam Zherka has over thirty years of success investing in commercial properties and multi-family housing units. With his creative mind, Sammy Zherka has completed more than a hundred commercial transactions. He weighs the pros and cons of commercial real estate and residential real estate below:
It’s a common question among budding real estate investors; should they get into commercial real estate or residential real estate? First things first, are you a high net worth individual? If so, you may have more leeway to get into commercial real estate. Sam Zherka warns that borrowing money to invest has its pitfalls, which is why low net worth investors may have no choice but to venture into residential real estate first.
Besides the capital of the investor, another striking difference between commercial real estate and residential real estate is the length of the lease. Sammy Zherka explains that residential leases are usually only a year long while commercial leases may last three to five years, both with an option to renew. Long term leases in commercial real estate are a double-edged sword, however. For instance, with a NNN lease, the tenant is responsible for taxes and repairs; the landlord practically only has to sit on the investment. But investors should be mindful that a lease is only as strong as the financials of the tenant. This means it can be more difficult to qualify tenants who are in a sound financial position to lease for several years.
Sam Zherka also shares that investors for both types of real estate can benefit from the services of a property management company, especially if they don’t have the time to deal with the day to day responsibilities of being a landlord.
For real estate investors who may want to dabble in both, Sam Zherka suggests finding an apartment building with a storefront on the ground floor. This is a good way for investors to expose themselves with the differences of the needs of each property.
As with any type of investment, investors should also account for risks. Delinquents and vacancies, for example, can stifle cash flow, so it’s always prudent to diversify and never put all of one’s eggs in a single basket. Sammy Zherka explains that commercial real estate tend to be more high risk, high reward plays than residential real estate because of the amount of money involved.
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