Residential real estate is easier to get started with simply because of the lower price point. That is why I suggest you should get your feet wet. The problem is when you get comfortable doing Residential RE and never ascend the RE ladder to the commercial level.

Although your ROI might be the same percentage-wise based on your investment dollars, here are 3 reasons to consider doing Commercial RE.

1. LESS VOLATILITY – When you have an apartment complex of 100 units and 5 people don’t pay the rent, you have a 5% percent loss. When you have an SFR when the tenant doesn’t pay rent, you have a 100% loss!

2. YOU GET TO DETERMINE YOUR VALUE – When you have an SFR, your value gets determined by the Fair Market Value of the neighboring properties that sold in the last 6-12 months. When doing commercial real estate, you get to determine the value of your building based on the NOI, not how the building next door is performing. You can create value by increasing your income AND reducing your expense. Once you have done that you can even increase the property simply due to the fact that you have increased the Class rating of the building. So perhaps you purchased a C Class at a 10 CAP and now it’s a B class at an 8 CAP.

3. MANAGEMENT VALUE– You get increased value by hiring a team to manage your units vs. having someone come in to do just one unit. For example, say your Single Family Residence management takes an hour. You hire someone to come in specifically to manage your place at $50/hour for the service. If you have multiple units that need to be managed, you have the funds to hire your own team rather than use a 3rd party service. You most likely will be able to have them manage your portfolio at $30/hour.

Please feel free to chime in with additional reasons for or against commercial real estate.