Most property investors, when first starting out, get into residential real estate for the simple reason that any other form of property – be it industrial, commercial, hospitality, or specialty – tends to be outside the comfort zone (both psychological as well as financial) of most beginners. Indeed, my own first investment property was a wooden villa, split into two flats. Subsequent properties, in my early days, were similarly residential.
However, even though I have been teaching real estate for two decades, and even though most of that teaching has been on the subject of residential real estate, I have long since moved on from investing in residential property.
Arguments For Residential Property
Most proponents of real estate – and there are many of them at present in this buoyant global property phase, including some who prior to this buoyant phase were promoting anything but real estate – have cogent arguments why residential property is the only way to go. In particular, they cite two advantages of residential not shared by commercial real estate.
First, they reveal that while banks are willing to lend easily 80% of the value of a residential property in the form of a mortgage, or 90%, or 95%, or even 100%, most banks will only advance 60%, or, if you are lucky, 75% of the value of a commercial property. In other words, the investor has to come up with a much larger proportion of the purchase price in commercial property, which naturally makes the deal much more difficult to put together.
Second, these residential real estate promoters point out, not incorrectly, that a vacant residential property commands about the same price as essentially the same property with a tenant inside, whereas a vacant commercial property is worth only a fraction of essentially the same property with a tenant signed up. In other words, should you lose a tenant, it could spell big trouble for commercial investors, but not for residential investors.
The Twist
As many readers will know, I delight in finding a “twist” in any situation. While the two facts above are indeed true, when combined, they create a twist that I have exploited time and time again in commercial real estate to give me massive financial rewards. After more than ten years of reaping the benefits of this twist, I feel it is time to share the knowledge.
So, my next seminar in Australia will be on commercial real estate. Of course we will go over all the differences, such as how with residential you tend to deal with people, government regulations and tenant indifference, whereas with commercial you tend to deal with contracts, no government interference, and tenants who have a vested interest in keeping your building look good, as they derive their income there.
But more importantly, you will find out how to exploit one of the simplest and yet most overlooked twists in the real estate industry to reap massive rewards for yourself. I’m telling you, residential will never seem the same again. So maybe we should call the course “Goodbye Residential Real Estate”.
