FAQs

Q: What is the difference between investing in residential properties vs. non-residential commercial and industrial properties?

A: There are a few differences non-residential commercial and industrial investors need to know:

1. When managed properly, non-residential commercial and industrial investment properties can provide higher returns.
2. With various lease structures available, it’s possible for commercial and industrial landlords to pass-through, or recapture, many expenses to the tenants.
3. Selling your building uses a different formula:
   Comps vs CAP: Cap rates provide insights into a property’s return on investment, while comps simply refer to a property’s value compared with similar properties in the area. A property’s cap rate is critical to understand before purchasing any type of commercial investment property.
4. Businesses don’t have the same protections as families, so the process of evicting non-performing tenants is often simpler and less time consuming.

Q: Haven’t commercial returns been down since COVID?

A: In some sectors, absolutely! For instance, office buildings have been hurting, and the main areas of commercial investing have struggled, but the industrial space has seen major increases in rents, high demand, and low vacancy. Success, however, requires identifying and understanding market trends, and recognizing which industries and areas are in an upward trajectory. That’s where we can help!

Q: Can I buy a commercial/industrial building with a conventional loan?

A: Yes, you can. Commercial loans are generally 5, 7, or 10 years with a balloon payment, and the shorter the term the better the rate (usually about 1% higher than residential). These are generally amortized over 25-30 years and are refinanced at the conclusion of the term. Despite the higher rate and need to refinance, these are often still more profitable due to the ability to pass through expenses to tenants.

Q: How does lending work for these properties?

A:  Commercial loans range in types, but one common approach is to amortize the loan over 25 years with a balloon payment due at the conclusion of the term which can vary from 1-10 years. The shorter the term the better the rate. These are generally refinanced when the term ends. Despite the minimally more complex process, there are advantages to these loans, including using the cash flow of the property to help you improve your position and leverage.