Comparing Private and Commercial Real Estate Investment

25 Apr

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Real estate has always been considered a solid investment because the supply of property is always limited. In addition to that, another benefit you get from investing in property is that you can use leverage when you’re investing in real estate. This means by just a small outlay of cash you can control a much larger investment.

Technically, there are only two differences in private and commercial real estate investment – cash flow and the way you obtain mortgages on the property. Here in this article we’ll talk about the two main differences and some other minor differences in these two types of real estate investments.

1- Cash Flow

With private real estate investment you can have the benefit of living on the property you have invested in. The value of your property will continue to increase over the years even when you don’t think about it. However, if you live in a single family home, your investment will provide no cash flow. On the other hand, commercial property investment will give you the same capital appreciation over the years, but on top of that it will also give you some cash flow in the form of rental income. You can easily rent out a portion of your commercial property and earn rental income on it. If you’re looking for rental options or are interested in investing in private real estate then you can visit laingsimmons.com.au for more detailed information.

2- Mortgage Insurance

Residential or private real estate will get you mortgage insurance on your own house. This will enable you to finance a big chunk of the purchase price of your property from any bank. And you’ll have to pay smaller down payment on the residential financing. In comparison, no mortgage insurance is available on commercial loans. This means that the lack of mortgage insurance and the underwriting requirements that are required for bigger loans will result in larger down payment on such loans. If you’re looking for viable financing options for buying commercial or private property then Stamford Capital Australia can help you finance your investment.

3- Credit Scores

Loans that are acquired for purchasing commercial real estate have more strict credit terms than the residential loans. Since the risk in the commercial real estate is higher than the private real estate, there is a chance that you’ll have to pay higher interest because of your low credit score. With residential loans you can get the financing even with a low credit score.

4- Seller Financing

Due to the higher down payment requirements associated with loans for investing in commercial properties as we discussed above, buyers usually turn to seller assisted financing. This helps in offsetting these down payment requirements or completely eliminating the factor of down payment from commercial loans. In private real estate investment, seller financing is only an option practised over distressed properties to give the interested buyers some incentive.

All in all, both types of investments in real estate have their own merits and demerits, and both investments are widely popular. Therefore, it’s entirely up to the investors/buyers and their preferences that influence their decision.

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