One of the things that investors need to think of when deciding whether to choose commercial or residential real estate is which one is going to give the investor access to more capital. It is actually easier to raise amounts under $3,000,0000 for commercial purposes than to raise $150,000 for a residential investment. There are several options available to private residential investors such as finding a hard money lender in New York. Other options include traditional financing and private funding from individual investors. Residential investors who are unable to acquire capital from any of these sources may find it necessary to raise the necessary capital in other ways such as owner financing, lease options, equity sharing and the like. While these options are not necessarily bad things, an investor’s inability to acquire necessary creative financing may cost him or her some great deals when creative financing is not an option.
Process of Commercial Real Estate Financing
Unlike investors in residential real estate, commercial real estate investors quite often pool their capital together into joint ventures. This allows a minimum capital investment for each individual investor which in turn tends to generate more interest from small private equity firms and finance companies. While commercial real estate investors have access to the same sources of funding as residential investors including traditional financing and New Jersey hard money lenders, they also have the added advantage of securing capital through other sources such as private equity firms, hedge funds and investment groups just to name a few.
Less Competition in the Commercial Real Estate Market
While there may not be statistics to support the notion that the real competition is in residential real estate, one can deduce from the advertising that this is more likely than not the case. When you compare the number of ads for commercial real estate and residential real estate, there is most definitely an overwhelming trend toward available real estate in the residential market. One likely reason for this difference is because commercial real estate investors do not sell their investments as quickly as investors in the residential market. In fact, many investors in the residential market purchase a piece of property at an immensely reduced price, renovate it and resell it to another investor or a home buyer. Investors in the residential market include not only those who wish to purchase property to lease or resell but also those who are seeking a personal residence.
Process of Valuation
Most people are familiar with the valuation process of commercial real estate: it is contingent upon other similar properties within the same general area. The revenue the property generates is the controlling factor in commercial real estate. This doesn’t mean comparable properties in the area have no bearing on the price of commercial real estate, it is not the only contributory factor in the value of the commercial property. Investors can actually “force” the value of the property to increase by doing whatever is necessary to increase the revenue the property generates.
Making the Right Decision
While there is little reason to doubt that commercial real estate is a better investment than residential property even given the more creative means of funding such as finding a hard money lender in New Jersey, individual investors must make the decision that meets their needs. Commercial real estate is also more expensive to maintain, so new investors may be more comfortable starting with residential property.