Commercial real estate investing is very different from residential investing. Done right, it will increase your wealth four times faster (or more) than residential real estate investing. While commercial real estate investing has great potential, getting it right the first time is best accomplished using proven commercial real estate training techniques.

One of the best aspects of investing in commercial real estate is once a modest portfolio is established; it often becomes a passive income stream. Property managers are brought in to manage the day-to-day operations and collect the rent checks that are then passed onto you, as the owner. It’s a great investment for people that don’t want to be hands on every day.

The single biggest reason commercial real estate outperforms single family residences is the volume of renters that can easily be achieved in the commercial sector. The purchase of a single-family residence means one income stream that results in a 100% vacancy rate when it’s vacant. Compare this to a small eight-unit apartment complex. When one unit is vacant, you still have seven other income streams – much less risk.

Another major advantage of multifamily residence investing is that you are much more in control of how much the property appreciates in value. Whereas, single-family residences appreciation is solely dependant on recent sales comparables, commercial real estate appreciates based on net operating income. In other words, how much profit is made after expenses.

Let’s look at some realistic financials in today’s market. Depending on the market you are investing in, you might purchase a single-family residence for $75,000 and rent it for $850 per month. Based on an 80% mortgage at 6% interest plus property taxes, your monthly payment would be $437.86. Mortgage and tax expenses amount to $5,254.32 per year. Your profit is $412.14 per month or $4,945.68 per year. Very likely, you’ll lose one month’s rent when your only tenant moves out and another doesn’t move in until a month later. That single tenant turn over, lowers your annual profit to $4,095.68, without lowering your expenses at all.

Comparatively, a small eight-unit apartment building could cost you $250,000 and each unit would reasonably rent for $650 per month. In the commercial scenario, your monthly mortgage and tax expenses are $1,459.52 per month or $17,514.24 per year. The big difference is your monthly income jumps to $7,800 per month or $93,600 per year.

Now, let’s assume you lose three months rent each year from renter turnover. That amounts to $1,950 and reduces your annual income to $91,650.

Your return on annual investment for the single-family house is 77.9% ($4,095.68 divided by $5,254.32). However, your rate of return for the apartment complex is 500.23% ($91,650 divided by $17,514.24.) A substantially better return with less risk that you won’t have the cash flow to meet the monthly payment because of a single vacancy.

Now consider this, with the multifamily investment, it is within your power to control how much the property appreciates based on net operating income rather than market driven comparables. With a 500% profit margin, you can easily afford to replace the carpet in all of the units and make other upgrades resulting in your ability to increase rents. Hence, an improved net operating income and increased appreciation.

In today’s market, there are plenty of distressed commercial properties available for dimes on the dollar. The secret to creating personal wealth is as easy as finding a poorly managed property with a high vacancy rate resulting in low net operating income. You purchase it at a deep discount and do a good job marketing it to increase the occupancy rate. Quickly, you are making a big profit on a deep discount investment. Now, you have the cash flow to make improvements, drive up rents, and realize a serious capital gain when you are ready to sell and move on to a bigger commercial property. Just imagine the income from a 100-unit complex.

Just like this blog began, there are much bigger profits to be made through commercial investing but there are also more complexities. If commercial investing appeals to you, don’t hesitate obtaining the needed commercial real estate training that assures your success.