Why do first time investors start with residential single family instead of commercial?
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[{"id": "fn8jwok", "text": "The price/ cost...", "replies": [{"id": "fn8kb2m", "text": "I live in Toronto, I've seen retail real estate same price as some condos here.", "replies": [{"id": "fn8m7hv", "text": "Commercial loans usually have higher interest rates, higher down payments, higher holding costs, less government subsidized incentives and much longer time between tenants. Commercial loans also rely much more on the ability of the property to generate revenue where as residential financing looks at your ability to service the loan with your paycheck like most owner occupied residences.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fn8kgf9", "text": "Everyone always needs a place to live.", "replies": [], "depth": 1}, {"id": "fn8kn2x", "text": "Single-family Real Estate is far more affordable for a single investor to take down. It\u2019s also a very familiar product type, considering the fact that 60%+ of Americans (not sure about Canadians) will own a home in their lifetime.", "replies": [], "depth": 1}, {"id": "fn8kq3u", "text": "Multifamily is a little more complex. For example, the lending process takes longer, your net worth and liquidity will be a factor, and you need a larger down payment. You can certainly learn it if you put in a little time, but it\u2019s natural for a beginner to get their feet wet in residential.", "replies": [], "depth": 1}, {"id": "fn8lw40", "text": "Easier to find passable deals in resi... don\u2019t need as much capital.", "replies": [], "depth": 1}, {"id": "fn8n18u", "text": "Commercial investors who own properties they are selling are usually much more sophisticated and much more knowledgeable than typical house owners who live in the houses they are selling. It's easier to get good investor deals from these residential owners. Also, residential properties are usually much easier to sell than commercial properties when it's time to sell. I owned a 184-unit apartment complex as well as a portfolio of rental houses. It was a pain in the ass selling the apartment complex and I still don't have all my money back since I had to sell it with a seller 2nd mortgage. Much easier to sell my individual houses.\n\nEdit: I'm adding that commercial properties can also be much more difficult to manage than residential properties. For example, a local investor lied about his credentials to get investors to give him $3.5 million for his syndication to invest in apartment buildings, but [his true lack of knowledge and experience resulted in gross mismanagement of the properties he bought, all at the risk of the people who trusted him with their money and with no risk to himself](https://triad-city-beat.com/as-apartments-fall-into-disrepair-owner-moves-to-next-investment/?amp).", "replies": [{"id": "fn8o4mb", "text": "To go to commercial you need to have a background or a resume so to speak otherwise the lenders won\u2019t fund the deal.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fn8n1sr", "text": "Let them complain. Less competition.", "replies": [], "depth": 1}, {"id": "fn8n66v", "text": "Honestly, I just think people aren\u2019t aware of going into commercial retail or multi family is just the same as renting a sfh. Only thing different are the tenants besides having to register the units and all the basic common sense stuff", "replies": [], "depth": 1}, {"id": "fn8optu", "text": "Why do most first time investors start with something they know in a location they happen to be in?", "replies": [{"id": "fn925jk", "text": "A lot of residential investors stumble into investing too. They have a house they can't sell quickly, so they rent it out. Or they buy a house that needs work, fix it up, and sell it a few years down the line.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fn8pdn8", "text": "Its more familiar.  \n\nI know nothing about CRE, intimidated.  \n\nWhere to learn???", "replies": [{"id": "fn9kg8v", "text": "This workshop is coming up in May:\n\nHttp://MultifamilyVirtualBootcamp.com", "replies": [], "depth": 2}], "depth": 1}, {"id": "fn8pxg8", "text": "Typically it\u2019s the complexity and barriers to entry. It\u2019s a lot easier for the typical person to come up with $4k-$10k and secure fha financing on multi-units they live in or to purchase their home and rent it out later than it is for that same person to come up with $300k liquid to put 30% down on a $1MM commercial property. Just examples, but that\u2019s why many get their start on the resi side.", "replies": [], "depth": 1}, {"id": "fn8pyff", "text": "Typically it\u2019s the complexity and barriers to entry. It\u2019s a lot easier for the typical person to come up with $4k-$10k and secure fha financing on multi-units they live in or to purchase their home and rent it out later than it is for that same person to come up with $300k liquid to put 30% down on a $1MM commercial property. Just examples, but that\u2019s why many get their start on the resi side.", "replies": [], "depth": 1}, {"id": "fn8q1ex", "text": "Typically it\u2019s the complexity and barriers to entry. It\u2019s a lot easier for the typical person to come up with $4k-$10k and secure fha financing on multi-units they live in or to purchase their home and rent it out later than it is for that same person to come up with $300k liquid to put 30% down on a $1MM commercial property. Just examples, but that\u2019s why many get their start on the resi side.", "replies": [], "depth": 1}, {"id": "fn8qqjs", "text": "This is a joke right? We\u2019re talking about significantly higher equity positions. Who\u2019s writing these posts?", "replies": [{"id": "fn8tu34", "text": "After this virus anyone who isn't a massive multifamily company should really hesitate being over leveraged. This is an eye opening world event.", "replies": [{"id": "fn9drnz", "text": "Are you saying that smaller multi family landlords shouldn\u2019t be highly leveraged because they on average do not have the cash to weather long periods of not receiving rent income? \nMulti family to me seems like the one asset class that will thrive in the wake of this virus.\nAny insight on what you think will happen would be much appreciated.", "replies": [{"id": "fn9swn1", "text": "I think it gets down to landlord by landlord. but the landlord who could secure super loose and very little downpayment financing is sucking wind right now, and likely will for at least another month. Mark Cuban says companies will be remembered for decades on how they handled this. Landlords still demanding rent (likely cause they are over exposed and can't endure a month without rent) are being publicly skewered right now.", "replies": [], "depth": 4}, {"id": "fn9vvm2", "text": "Industrial as well", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "fn921pf", "text": "To be fair, he lives in Toronto. Commercial properties are probably cheaper than most residential there.", "replies": [], "depth": 2}, {"id": "fnacske", "text": "kids who don't earn shit and don't own shit, but are big swinging dicks on the internet", "replies": [], "depth": 2}], "depth": 1}, {"id": "fn8rzin", "text": "From the people I've spoken to, because they understand SFH. When it gets to managing multiple units and the cost going up, they get scared or confused.", "replies": [], "depth": 1}, {"id": "fn8ub0i", "text": "easy familiarity", "replies": [], "depth": 1}, {"id": "fn8ukgv", "text": "Because first time investors don\u2019t have the capital to compete with the cash buyers/investors in an inflated market like LA County.", "replies": [], "depth": 1}, {"id": "fn8uxjc", "text": "Risk", "replies": [], "depth": 1}, {"id": "fn8wlsf", "text": "In addition to what has been said, commercial properties require commercial loans, an LLC etc. Could you get commercial loans without REI experience? Probably but not as easy as someone who has 10 homes.\n\nCommercial properties are treated and valued like businesses. You have to understand how to value a property, how to assess if its a good deal and assess the value you can add to it. This is much easier to do on SFH where you can look at comps on zillow or ask a realtor. \n\nIts costly to mess up on an apartment complex. Not as costly with SFH.", "replies": [], "depth": 1}, {"id": "fn9101e", "text": "There is no difference, just in the # of potential renters.", "replies": [], "depth": 1}, {"id": "fn9fzpr", "text": "residential market is much more liquid/more buyers and sellers, more loan types to sell assets etc.", "replies": [], "depth": 1}, {"id": "fn9gj7e", "text": "Easier to understand, easier to get tenants, easier to get market rent at high occupancy. Plus it is also highly profitable so nothing to shy away from. Personally when I build my portfolio it will be all residential small city blocks for A/B grade tenants - this way you don\u2019t loose your portfolio every crash.\n\nCRE is very complex, you need to push your tenants to maximise profitability but also make sure they\u2019re making profit so you can get paid. You also want A/B grade tenants, a lot of this comes with connections, if a landlord who they have relationships with in the local area have a store opposite yours they will use them. CRE also has long vacancy periods, lease renewals, and assets can become unwanted overnight (there are warehouses built for specific clients used for 20 years that become redundant overnight if that company goes under (car manufacturers etc).", "replies": [], "depth": 1}, {"id": "fn9kuf0", "text": "Apart from the answers here... Retail?  Really?", "replies": [], "depth": 1}, {"id": "fn9mm0q", "text": "Well.. commercial spaces are very high risk. Either you\u2019re buying a single storefront for ~$400k or a small complex for $1.2M, usually with 25% down. Commercial space has less turnover, but LONG stints of vacancy with no cash follow.\n\nYou can get a house or multi family for around $200k-$400k, sometimes with only 3.5% down (because of new homebuyer initiatives). That may have higher turnover, but very low vacancy times.", "replies": [], "depth": 1}, {"id": "fna309r", "text": "Barriers to entry, same reason everyone doesn\u2019t rush into capital-intensive industries.", "replies": [], "depth": 1}, {"id": "fnan24a", "text": "Funds will happily overpay for commercial deals, because they make money by placing capital. You reslly want to compete with that kind of buyer?", "replies": [], "depth": 1}, {"id": "fnb1an6", "text": "SFH is more straight forward with less smoke and mirrors. A new investor can pick up a home that's not income-generating for a deal and make it earn money whereas commercial real estate is priced with the intent to make money. It costs money to make money so if you think you can save a few dollars by buying unoccupied commercial real estate you have to remember the longer vacancy periods and upfront costs to get it rented can be pricy. Landscaping, janitorial, commissions, TI, advertising, management, business park association fees and so on. \n\nIn many of the commercial deals I've worked you have more areas to watch such as owner-managed, or even owner-occupied under their 6 different LLCs. The prices could be based on proformas where the asking price is based on all tenants renewing for longer terms and the rate is based the highest the market can handle yet when you completed the lease abstracts and the astoples get involved you find the actual rents are 20% under market, there's a 30% vacancy and half the tenants are on a month to month or their leases expire before closing. You also have the various lease types to contend with where you can have a NNN yet the previous owner leaves CAMs out the of the lease verbiage so the tenants get a full service without paying the cost.", "replies": [], "depth": 1}, {"id": "fncufq1", "text": "Everybody needs a place to rest;\nEverybody wants to have a home.", "replies": [], "depth": 1}]