Commercial Vs. Residential Rentals

[Craig]

Appreciation on residential property was clearly great for awhile, and helped cover the dismal rental returns.

While we have the comfort of timing the move to a better market, we're thinking strongly of doing 1031's to move from what is effectively a 3% or less cap rate on residential rentals into more likely 8.5%+ cap rates on commercial rentals.

Anyone else gone through this math / transition? Any suggestions? Easier to just cut straight to a REIT?

 

[Mach1]

I don't know what the return is for REIT, for me a 8% or more cap rate on commerical properties is a much better deal then residential.

Mach1

 

[poyet]

Returns on REITs are now very low (we had a discussion on that). Apart from that returns on commercial props have always been higher than on residential. NNN deals might be interesting though they most of the time require some significant investment. Being the landlord of commercial props does not relieve from problems though. One of the companies I rented a warehouse to has gone bankrupt and problems are at the size of the company (60 tons of garbagge and toxic products left behind...). But returns are higher... BTW most of my productive RE is commercial (shops, hotel and warehouses).

 

[Mr._johngalt]

Returns on REITs are now very low (we had a discussion on that). Apart from that returns on commercial props have always been higher than on residential. NNN deals might be interesting though they most of the time require some significant investment. Being the landlord of commercial props does not relieve from problems though. One of the companies I rented a warehouse to has gone bankrupt and problems are at the size of the company (60 tons of garbagge and toxic products left behind...). But returns are higher... BTW most of my productive RE is commercial (shops, hotel and warehouses).

 

[brewer12345]

Returns on REITs are now very low (we had a discussion on that). Apart from that returns on commercial props have always been higher than on residential. NNN deals might be interesting though they most of the time require some significant investment. Being the landlord of commercial props does not relieve from problems though. One of the companies I rented a warehouse to has gone bankrupt and problems are at the size of the company (60 tons of garbagge and toxic products left behind...). But returns are higher... BTW most of my productive RE is commercial (shops, hotel and warehouses).

You can get in on NNNs on a bite size basis by buying shares in REITs that specialize in such instruments. One I know of (but haven't thoroughly researched) is SFC. No doubt there are otehrs.