Commercial Real Estate Investing vs. Residential
Commercial Real Estate Syndication & Investing, Photo by Scott Blake
The most common question we get during our commercial real estate investing webinars is, “Commercial real estate, so you mean, office buildings?” Technically, yes, office buildings are a type of commercial real estate asset. But they are the proverbial tip of the iceberg. Let’s take a look at commercial real estate and better understand the landscape.
What Types of Properties Qualify As Commercial Real Estate?
Commercial real estate (CRE) is a property zoned to be a business. CRE assets include multifamily (5 or more units, 4 or less units are residential properties), retail, hotels/hospitality, self storage, mobile home parks, industrial, oil/gas, warehouses, manufacturing and more.
How Are Commercial Real Estate Properties Appraised?
In the residential world, property is valued based on a comparative sales analysis, or “comp”. Your house is worth what someone is willing to pay for it. Or at least what someone was willing to pay for your neighbor’s. An appraiser uses the square footage, the number of bedrooms and bathrooms, and other objective data to determine the price.
Commercial real estate works completely differently. Instead of being appraised via comps, it instead trades on a multiple of income. That multiple is called a capitalization rate (cap rate for short).
Commercial Real Estate Investments Compared To Residential
Commercial properties generally outperform residential properties as investments because there are more levers to pull. One key feature of commercial real estate is its true market value is impacted by its ability to generate revenue.
Let’s take a look at a 20-unit apartment complex. The apartment complex is considered commercial real estate since it has more than 4 units. Instead of comps, it trades on a multiple of net operating income, or NOI. If the owner can increase the property’s income (or decrease its expenses), s/he tangibly increases its value.
This a tiny fraction of the type of principles Turbine Capital employs in large scale commercial real estate projects to create massive value which doesn’t depend on the broader market.
Not only are you investing in commercial real estate with Turbine Capital’s syndication deals, you are also investing in a full-time team (typically called operators), who manage all of the above and more.
Turbine Capital specializes in commercial real estate syndication deals for pilots and other high-income w2 professionals. If you’d like to learn more about commercial real estate investing, please join our investor club.
