The biggest difference between single family homes and apartments or commercial real estate would be that if you have a single family home and someone moves out, how much money do you have coming in?
Consider these things:
- The amount of work that you do to purchase a duplex or four-plex is the same as when you purchase a 20 unit apartment building.
- Start with your own backyard. You are more aware of where rents are going, what areas are thriving, and where vacancies are.
The Difference Between Commercial and Residential
When you buy real estate there is a big difference between 4 and under and 5 and over units. Single family homes, duplexes, triplexes, and fourplexes and all considered residential real estate. If a complex has more then four units it is considered commercial real estate.
At 5+ units many real estate laws do not apply anymore and the financing changes. At 5+ it becomes more of a conversation of the income of the property, rather than it being more about the credit of the individual buyer for 4 and under unit complexes.
Residential is very emotional, whereas commercial is more about the deal. In commercial real estate you fall in love with the numbers and the deal, not so much with the property itself.
Instead of being in love with the house, and the way it looks, there is often a big fear associated with commercial real estate. To rid yourself of this fear, it all comes down to education. You need to be educated on what you are getting yourself into. You need to become familiar with apartments and that will remove the emotion of fear. Fear is caused by the lack of knowledge.
One commercial deal can change your financial life forever. A client of mine named Joe was an advertising executive in New York City. He decided to get into the apartment business and decided to go for a 100+ unit apartment complex. I began mentoring him in January, back when he was renting out 3 single family homes, and by July he owned a 168 unit apartment complex. He learned how to do due diligence, how to manage, and how to run an apartment.
Joe had the option of purchasing 168 single homes but he chose to purchase a 168 apartment unit instead. This means one location, one manager, one lawn to mow, one roof, and one staff. His one commercial real estate complex is much more efficient, and has a much larger financial safety net then investing in multiple residential units.