Forbes If you’re thinking of investing in property, you may have found resources on how to fix and flip homes. Books and TV shows often show how to get involved in this space, and certainly if you time it right, you could get a quick return on your investment. The process is typically to buy a home that needs renovation, make changes and updates, and then sell for a marked-up price that covers your expenses and brings in a profit for your work.
While it may be appealing to try buying and fixing up homes, there are other real estate investments that you may want to consider as well. In my book, “The Insider’s Edge to Real Estate Investment,” I focus on commercial real estate investments. In the multifamily segment, I define these as properties with at least five units. There are other types of commercial real estate investments including office, retail, and development.
Given this, before rushing out to buy a single-family home and start renovating it, it could be worthwhile to compare the two types of investments. Once you understand the differences between residential and commercial real estate transactions, you’ll be better equipped to make a decision. You could even spot opportunities that aren’t easy to find, and offer a higher-than-average return.
The Holding Times are Different
If you’re in the business of reselling residential properties, you’re likely making a purchasing decision that’s based on the repositioning and selling of the asset. This will often depend on both the improvements that are made and the market conditions. If everything aligns, you could bring in a profit when you sell. The potential short-term gain will play a significant role as you consider a home to buy.
For commercial investments, the decision doesn’t always focus on the later sale. Instead, it typically hinges on the cash flow. That’s not to say that investors don’t speculate; however, they tend to be more focused on the income that the property can generate. Based on what they find and how the property operates, they might plan to hold the asset for the long-term.
The Competition Varies
When purchasing single-family homes, investors often find themselves competing with end-users, who are other homeowners in the area. This can present a challenge, as the other buyers on the market might not be as concerned about their bottom line. They might be willing to pay a premium to get a certain amenity or move into what they view as their dream home. This means you may have to pay more than planned to get a home you were considering for a fix and flip project.