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Investments: Commercial vs. Residential

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Opportunities abound everywhere.  Some areas, such as Fort Lauderdale, areas of Miami and many pockets in Palm Beach County have very interesting deals in both commercial and residential real estate.

A big concern is frequently how to determine value in a property, what to base valuation on and what to look for.  A bigger concern is whether to choose a residential investment property or commercial.  There is not right or wrong; no perfect answer.  It comes down to a matter of comfort. However, we can tell some things to look for to aid with your decision.  As real estate professionals, we are always available to help you.

If you’re interested in residential investments, such as a condo to rent, look at recent sales, but not older than 90 days in the current market.  Since it’s an investment property and you’re considering the purchase for value, consider how many occupants are tenants vs. actual owners.  Buildings with many transients (renters) may not be appealing for resale.  Also consider the age of the building for simple things like amenities (higher rent) to more complex things such as deteriorating structure (higher cost).

When looking commercial investments, there are many different details to consider, such as exposure.  There is far less traffic (fewer eyeballs) on non-main roads.   In commercial property, value and valuation is often based on income and vacancy rates.  Look at the leases to see when increases can happen and how big they are, as well as expiration of leases.  Other details to consider are how densely or lightly populated the surrounding area is.

If you decide on residential, do you purchase one unit or in bulk?  Which will give you a better return and which can you afford? Consider how you’ll get tenants, what it will cost you in condo fees and other expenses.

If you’re interested in Commercial, do you choose office? retail? an apartment building?  Consider occupancy/vacancies, income and expenses so you can determine your rate of return. Consider how you’ll fill vacant spaces and how vacant you can be without taking money from your own pocket, and for how long.  With any investment there are bound to be pitfalls, oops’ and unforeseen events.

Once you’ve picked out your investment property, you need to arrange for financing.  Credit will always play a huge role as will experience and how large your deposits are towards the purchase..  When dealing with financing, don’t discount the value of you real estate broker short – we’re all about relationships and know many great lending sources.

How do you bolster you value? With management, of course.  Some buyers prefer to manage their property on their own.  Self managing for the inexperienced is ill-advised.  Income producing properties rely on their income to generate value.  That requires proper management.