April 30, 2014
People who are new to real estate investment sometimes find themselves stumped by which type of investment to start out with. Commercial or residential? Keep in mind that an apartment complex (commercial property) is defined as five units and above. Four or fewer units is considered a residential property.
We recommend that you start with a residential investment, unless you have a large amount of money to invest and you work with an experienced partner. Why should you do this instead of going with an apartment purchase and multifamily loan?
1. Apartment ownership and apartment loans are more complex, with many more parts. Starting with an apartment complex and multifamily financing is like starting by flying a jet plane instead of a single-engine airplane.
Another way of saying this is that running an apartment building, especially one with quite a few units, is running a business with many different parts and takes quite a bit of expertise to succeed. If you do not have the expertise, there is a very strong chance you will not succeed.
If you start by investing in residential properties, you will begin building the experience needed to succeed later on with apartment complex purchases and apartment loans.
2. Multifamily financing takes quite a bit of money. For example, your net worth has to be at least the size of the loan. Your down payment needs to be at least 20% of the value of the property. Plus you will be responsible for loan expenses and reserve requirements.
Those involved in purchasing apartment complexes and acquiring apartment financing generally are people who have built quite a bit of wealth over time and have acquired the needed experience to do well in this great form of investing.
Bruce Painter, Director of Marketing
Business Loan Store