Commercial property as an investment vehicle
Would property (specifically commercial property ) work as an investment vehicle if leverage was not used?  That is, if you had to purchase the properties with 100% equity would it still work as a comparable asset class to owning shares in the stock market? 
[{"id": "d0yiq16", "text": "Of course it would. Just curious, is there something that leads you to believe it wouldn't be comparable?", "replies": [{"id": "d0z0mwf", "text": "the way I look at property, and it may be the wrong way, but it is an offset for inflation with a little bit of scarcity (there is only that much land), on average in a portfolio situation.  \n\nSo if inflation is approximately 2%, add a couple of extra percent for risk and the scarcity factor, one should expect about 5-8% return if all goes well.  \n\nWhere I believe property shines is you get that 5% for 100% of the value, yet you only put in 20-30% equity so that 5% works out to be 20% + for your Return on Equity.  \n\nIf I were to buy the property with 100% equity, should property still make sense.  \n\nI have got to a situation that I cannot get more lending due to cash flow restraints rather than equity.  That is, I have equity heavy, cash flow poor.  So if I want to add more to my real estate portfolio I would have to do it at more lower potential ROIs, so at this stage would it be better to put it in the stock market.   ", "replies": [{"id": "d0z1721", "text": "It sounds like it might be time to refinance on some of your other properties. If you have a lot of equity in them, but your cash flow is still poor, I would assume your main issue is your debt service is still high. \n\nOf course, the more leverage the better because it allows you to achieve a higher CoC return. \n\nOverall, I am very biased towards RE over the stock market simply due to the fact that you have almost zero control over what happens in the stock market. At least in real estate you can control what you buy, where you buy, and how you buy, not to mention how the asset is run after purchase. \n\nIt sounds like you already have a RE portfolio so I am sure you can see the benefits of both and I'm sure you will make a good decision either way. ", "replies": [{"id": "d0zmp5g", "text": "&gt; the more leverage the better\n\nTrue when the economy is doing well and financing is relatively easy to find. Not true when the economy dips and you aren't meeting the banks Debt Service Coverage Ratios, your vacancy increases, or capital reserve requirements are not being met.\n\nPlenty of people lost their buildings despite never making a late payment on their debt.", "replies": [{"id": "d104jj9", "text": "Yeah, you are correct. However, I said that the more leverage the better *because you are able to achieve a higher CoC return*. This doesn't always mean it is the best option", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "d0zo760", "text": "Most lending for commercial RE requires a certain DSCR be met, so the fact that you are cash-flow-poor is not good for ReFi purposes. What is causing the property to produce so little cash? ", "replies": [{"id": "d10asm8", "text": "I have a few residential properties that are low cash flow but high capital gain properties.  I have a business so the banks don't look at my cash flow as stable, so I have capital, but poor cash.  \n\nSo looking at cash flow properties, commercial properties came into my radar.  But how do I get into the game, do I purchase a few small properties for 100% equity now?  compared to being able to own a few medium properties if I had the cashflow.  ", "replies": [{"id": "d13sp52", "text": "You could sign up for a high leverage loan with the resi properties as collateral, but if the market tanks you will lose everything. If you have cash to spare then go ahead and buy commercial properties with low leverage (less than 55%) and make sure the properties have stable income, long term tenants, or room for growth. ", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "d0ym0km", "text": "sure, even with leverage. ", "replies": [], "depth": 1}, {"id": "d0ytztm", "text": "The commercial property is a comparable asset for diversification.", "replies": [{"id": "d0z0w4x", "text": "What if diversification wasn't the problem, mainly looking at long term return ", "replies": [{"id": "d1b9gnu", "text": "Multifamily and net leased properties are suitable for long term market rate returns. In some cases developing a property offers higher returns, especially when there is a demand for tenants locally.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}]