Investing in Commercial property vs Residential property in San Diego, Ramona and Poway.
Commercial and Residential investments are 2 different animals.
Commercial investments you cannot get the long term financing as you can on residential and the terms of the loans very greatly. Interest rates are usually higher. You will need to put an average of 30% down in most cases, and the appraisal costs start at $3,500.00 and can go up , environmental studies costs can vary too. To qualify for Commercial it is usually based on the income the property can produce and the borrowers ability to pay and credit.
Commercial Tenants are usually great tenants as most commercial leases are triple net leases meaning the tenants pay for all property Taxes, insurance and maintenance , if the building has 4 total units then the expenses are usually divided by square footage of each unit. These tenants need to take care their space as this is their business, the draw back is, when you have a vacancy it can take a while before you re lease the space. A leasing company can help but you will pay a portion of the rent to these leasing agents for their services.
Commercial Big Retail (Ralph's, Dollar Store) and Fast Food Chains ( Jack in the Box, El Pollo Loco, Starbucks) are usually anchored tenants and leases can be for 10 years or more and they pay annual increases in their leased contract. When you go to buy one of these commercial building the price you pay is determined by the guaranteed lease amount as well as the lease term that is still left on the property, I feel these deals average a 3%-4% return on your money in California other states maybe more, but are stress free investments unless the tenant moves, then you have to find a new tenant and and give that tenant incentives for moving in and remolding costs to get them up and running which can be thousands of dollars.
Residential investing is much easier and safer for a first time investor. Its not hard to find tenants, everyone needs a place to live so the vacancy factor is less, better financing options. You can get into a 1-4 unit property thats is owner occupied with 3 1/3% down and VA 0% down. Draw backs are there is more of a risk for lawsuits so be protected, and you have to manage more tenants and deal with repair issues. These investements still increase in value as most all Real Estate investments do over time.
As always call or text me at 619-987-5291 if you want a free investment consulation, I am here to help you grow your investments or help you start investing. I love what I do!
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