Many people who are interested in real estate online look at the residential side of the equation. There’s nothing wrong with that per se, other than the fact that almost everyone is doing it. Most people are trying to figure out how they can win in a market that is actually quite finite and falling in size regularly. So, what are the 5 reasons you should quit your residential real estate obsession and look into commercial buildings instead?
By Team Savant
Image: iStrfry , Marcus
Market Volatility
The market volatility in the real estate sector can be quite significant, especially on the residential side of the equation. The reason for this is its close ties with the money cycle. When banks expand credit, the price goes up. But when they contract it, like they did during the financial crisis, property values collapse because there simply isn’t the lending to support them.
Mortgage rates are usually around 5% if you can find a good deal. However, they can rocket to over 10% if the central bank decides it wants to change its policies.
High Hidden Costs
Another factor to consider is the high hidden costs of residential real estate. It’s expensive to maintain a property, and many landlords have responsibilities.
That’s not so much the case with commercial properties. Tenants can be kicked out quickly, and usually they’re responsible for things like the fit out and the maintenance.
To drive this point home, remember that most regular homeowners spend up to 2% of their property’s value on maintenance every year. That’s a lot of money that simply doesn’t feature if you go down the commercial route.
Difficulties With Mortgages
As a residential real estate investor, you may also encounter difficulties with mortgages. They can be hard to obtain for rentals, especially if you have existing debt.
If you set up a company, though, getting a commercial property buy to let mortgage is surprisingly straightforward. Lenders will consider the company’s credit status and standing aside from you individually, giving them more confidence when it comes to lending.
Shifting Demographics
Another critical consideration is the shifting demographics of our society. Many young people are essentially delaying home buying because of the high interest rates and overall prices, with many preferring to save money at home or simply give up on the idea of homeownership in the first place.
Remote work is also changing things. A lot of young people don’t see the point of owning a home if they don’t need to be tied to a specific region for their work.
Better Investments Elsewhere
Finally, there’s a case to be made that there are just better investments elsewhere outside of the residential market. The commercial property sector, for instance, is more varied and has more hidden opportunities for people who understand it to exploit. A lot of investors are making fortunes by converting old commercial developments into things that people actually want.
So there you have it: some of the reasons why you might want to quit your current approach to real estate.