Like any business, commercial real estate has its’ share of myths and misconceptions.
It’s easy for some half-formed idea prevent you from following your investment goals – if you let it.
But if you’re really interested in getting started in commercial real estate, then you’ll be happy to know that some of those roadblocks you thought were insurmountable aren’t even on the highway.
Here’s a list of some common misconceptions that may be holding you back from making a passive income:
COMMERCIAL REAL ESTATE MYTH #1: YOU NEED A LOT OF MONEY TO GET STARTED
This is one of those things that’s based on a misunderstanding of what commercial real estate is. Sure, there are properties whose worth ranges into the millions of dollars – but those are only one kind of commercial income property.
There are numerous types of commercial real estate, ranging from small office buildings, to mobile homes, to farm land. You can get an office suite for about the price of a house – anywhere between $350,000 to $500,000 – and at a much better net return than apartment buildings.
COMMERCIAL REAL ESTATE MYTH #2: COMMERCIAL REAL ESTATE IS RISKIER
Risk is inherent in anything you do. As the saying goes, even crossing the street is risky. Risk, however, doesn’t exist in a vacuum: in order to decide whether or not commercial real estate is risky, you need to compare it to other investment ventures.
Let’s take stocks, for example. What aspect of owning stocks can you control? Management, expenses – those are all in the hands of the company’s owners. You can do your best to pick a well-run company, but after that, you simply have to hope for the best.
Or let’s compare apples to apples: residential real estate. Let’s say you own a single-family building in a decent area. Suddenly, at the end of the lease, the tenant who promised they’d be staying another two years decides to move to Honolulu. You’re left not only with the cost of replacing your tenant, but also faced with renovation costs, and an emptier bank account, until you find a replacement.
Compare that to commercial real estate: a multi-family apartment building, 50 units. One tenant moves out – the next month, you still need to find someone for that apartment, but your bank account still receives proceeds from the other 49 units.
COMMERCIAL REAL ESTATE MYTH #3: COMMERCIAL PROPERTIES ARE A PAIN IN THE NECK TO MANAGE
Commercial properties can be difficult to manage – if you have choose to manage them yourself. However, the net income of a commercial income property makes it more feasible to hire a management service, and with a typical fee of 3-5% instead of the standard 7% of residential properties, it is often cheaper as well.
Of course, it would be wrong to say there are no challenges involved in commercial real estate. You will need to educate yourself about the field, and you will mistakes. However, as in life, the level of risk is proportionate to the level of return. Commercial real estate is one of the best ways to build a stable passive income for retirement, or simply to supplement your primary income.
