Why Invest In Commercial Properties Instead Of Residential?

When investors were leaving the stock market in droves, they turned to investing in real estate. And real estate is an excellent choice compared to stocks. The tax deductions and potential for price appreciation are enough reasons for burned out stock market investors to make the switch.

But real estate is a wide open field, where should you focus your time and money?

Many people might believe that residential property investing is the best way to go. Just look at all the television programs that are now on the air, such as "Flip This House" on A&E and "Property Ladder" on TLC. They focus on buying residential properties as investments. But I think the better solution is investing in commercial properties. Here are 3 reasons to leave residential investing and start investing in commercial properties.

With commercial properties, the properties qualify the loan...not the borrower. Commercial lenders concentrate primarily on the income produced by the property to determine the financing risks. So with a few financial calculations, you can determine if the property will qualify the loan amount requested.

There is a term that is never heard of in residential financing...non-recourse. Non-recourse financing is a type of debt in which the borrower is not personally liable. If you default on a non-recourse loan, the lender must recover the amount you owe by foreclosing on the property by which the loan is secured. This won't affect your personal credit score.

Investing in residential property, you will eventually find yourself in the world of tenant hell. Where excuses and non-payment go hand in hand. And government entitlement programs, such as Section 8 can cause you to lose your mind with bureacracy.

But with commercial property tenants, you will find them to be more professional. They are in a business and treat their leases as such. With commercial leases, they can be long term (5, 10, 15 years) and the they can be written so that the tenant pays for maintenance, taxes and insurance.

Most investors want to invest in commercial properties but let fear of the unknown stop them. But with proper training and education, buying commercial properties is not that difficult.

Patti Porter is Commercial Financing Consultant specializing in Apartments/Multi-family and other income-producing commercial properties. If you need financing or help in determining property value, visit http://www.profunders.com.

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