As I continue towards my goal to be financially independent within a few years (see my progress here), one direction that I intend to take is buying some real estate. I’ve explained some of the reasons why as well as a few of the benefits involved. This week, I took time to look into one critical decision I will be faced with when I do finally end up buying some real estate.:
Residential Or Commercial?
There are a lot of different benefits and downsides involved. The main ones that I was able to find:
-dealing with businesses can involve complex lease contracts that can be intimidating and require legal help
-higher down payments are generally required to get a mortgage/loan
-a lot more can be involved depending on the type of activity performed by the company
-can turn out to be more difficult to rent (while good residential ones will generally rent easily at the “right” price
-more difficult to deal with tenants as the landlord must work with many different laws
-process is much more straight forward. Why? I have rented before, know what’s involved, etc
-legislation often limits how prices can be increased every year making more difficult to run profits
-finding key tenants is critical: not only will it determine how reliable they will be in paying but also will take care of the property, hopefully live there for a few years, etc.
I will probably end up buying a condo to start things off. It will provide me with an easier way to become familiar with all of the different aspects of being a landlord. It will also require a smaller investment which is certainly significant. One reason is that I don’t want to invest a million dollars on one building to be lent out to 1 business. It would make me too dependent I’d much prefer to start off with something smaller and increase my investment by adding new units in different locations. This would provide me with a lot more diversification.
I know that some of you have generate income from real estate holdings, I’d love to hear what types you hold, and what kind of experiences you’ve had. I do know that I’d much prefer renting out at a slightly lower price to a very reliable person than trying to rent at the very top. It will certainly make for very interesting research…