Q and A: Residential Property Investment vs. Commercial Property Investment
Dear Mr. F.
I have been trying to buy my first investment property and most people suggest I buy residential over commercial. Why do you favor the latter?
Perhaps it is a matter of personal preference, but for our investors, we have had the most consistent returns in commercial real estate. If you are seriously considering buying a multi-family home for pure investment, I would caution you to insure that you have no lead paint [or other environmental] issues and that you do the most extensive credit check on your prospective tenants. Removing a bad tenant can be a costly and timely proposition … particularly when the proposed eviction involves families. Further, if you fail to fully and completely remediate all environmental concerns, you may find yourself with a tenant who doesn’t have to pay rent until the work is completed using a full permit process and then reviewed by a licensed environmentalist.
With commercial tenants, there is rarely any significant emotional attachment to the process of removing them for delinquent payments and the courts tend to enforce contracts quite literally. Understandably, that may not be true when a judge hears tales of woe from persons who are going to losing the roof over their head.
Good luck with your search … let us know how things work out.