I was asked the other day by a new investor what my favorite type of commercial property is to invest in. After all, I have invested in a variety of property types including apartment buildings, office buildings, restaurant spaces, vacant land and other categories of commercial properties.
I like apartment buildings best. They are easy to find, easy to analyze, everyone needs a place to live, banks love to lend on them, and they're great cash flow generators – especially now that prices and interest rates are down! In fact right now FNMA is offering 5.5% loans on apartment buildings!
For a new investor they are easy to analyze, manage, and easy to relate to. For an experienced investor they are straightforward to manage and you can set up business systems to automate and delegate the mundane day-to-day tasks of owning apartment buildings. Once one is started it is relatively simple to buy more and more apartment units and become a rich apartment building mogul.
Now is a great time to start. There are lots of great deals on apartment buildings because Buyers are sitting on the sidelines forcing sellers to be realistic about prices.
Properties are being bought on cash flow today based on current rents and occupancy – not on artificially high prices based upon hope of future appreciation or condo conversion. Buying at today's low prices gives you positive cash flow from day one. That makes is a smart investment.
My advice to my new investor was to start off with apartment buildings. I recommended that he start by investing in small to medium-sized multi-unit properties (5 to 12 units) then work his way up to larger properties as he gained experience and a strong management team.