Residential real estate investing has so many great angles and opportunities to create wealth, it really gets our juices flowing with excitement.  For a beginner or even experienced residential real estate investor, there is a lot to learn.  Everyone, including your neighbours, friends, family, even in-laws have their opinions on what is right and what isn't when it comes to real estate.  That’s what makes this such an entertaining and if done right, profitable, topic.


 

One of the first things you should know about real estate investing is that in general any building that has four or more units in it is referred to as a commercial property.  Even if those units are used for residential purposes!  Therefore, when you look at an apartment building, think of it as a commercial property when it comes to investing.


 

There are exceptions to this, but in general, that's the case.

Commercial investment properties are also things like strip malls, office buildings, industrial units, warehouses etc.  This is important to know because lenders (the banks) treat these properties very differently when it comes to getting financing.  For commercial properties, it's much more likely you'll have to put 25% or more as a down payment.  Yet, you can put as little as 5% down on residential properties (insured mortgages and generally available on your first residential residence).

The difference with commercial transactions is that it's much more typical to see 'vendor takebacks'.  This is where the seller carries back a portion of the value of the property (let's say 25%), and you pay a fixed amount every month to them just as you would the bank.  While unlikely, you can still find commercial investment properties at 0% down, however this would likely involve more creative vendor/seller take-back financing that goes on in this arena compared to residential real estate investing.

If you use a mortgage broker for the transaction, you will also likely pay a 'broker fee'. For residential real estate investing transactions, the broker's fee is paid by the bank that takes the mortgage.

Another way that residential investing is different from commercial investing is how differently these two types of properties are valued.  To value commercial investment properties, it requires a more detailed understanding of things like cash flow, cash on cash return, net operating income and return on equity.



 

Residential real estate investing is a different animal altogether.  People who focus on commercial investment properties may not focus as strongly on the factors that are important to residential real estate investing.  These factors would often look like the importance and appreciation of the neighbourhood, comparable property prices, and financing options.  Further, the residential real estate investing purchase and sale process and finding residential tenants are also taken into consideration.


 

In summary, commercial properties are typically valued based on some form of income calculation while residential real estate investing uses comparable properties to come up with a dollar value.  The concepts are similar, but the expertise required is different.

If you are thinking of becoming a real estate investor yourself, or you are already an investor and would like to leverage your current investment(s) into more properties, or you are looking to sell one or more of your investment properties, give me a call at 905-683-7800.  I’ll be more than happy to answer any and all of your questions and be your go-to resource to help you build wealth through real estate.





 

Thanks For Reading Today’s BLOG!

Brian Kondo
Sales Representative / Team Leader
The Brian Kondo Real Estate Team
Re/Max Hallmark First Group Realty Ltd.
905-683-7800 office
905-426-7484 direct
brian@briankondo.com
www.BrianKondo.com
www.BrianKondoTeam.com

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