Why Passive Investing in Commercial Real Estate is a Smarter Strategy Than Single Family Rentals

Most real estate investors deal with single family houses. Having bought their own homes, this process is something they understand. Moreover, buying a second home is an attractive venture to the homeowner who has witnessed the gradual equity growth of their first home.

This strategy is great. However, for the investor seeking to diversify in real estate, commercial real estate is a good way to build your portfolio. People do not realize it but having single family rentals is risky and tough. They come with many challenges such as:

No sustainable cash flow: many people purchase their single-family rentals with debt, hence little or no sustainable cash flow. Too much risk: there are great risks associated with owning single family rentals, especially when the property is leveraged. You may end up losing more than you invested. Lack of economies of scale: some large capital items such as cooling systems, driveways, roofs, and heating are used by one tenant.

When the property incurs sudden capital costs your cash flow can be temporarily wiped out. Costly management: when you own single family rentals, you either hire someone to manage them for you (at a huge percentage of your income) or do it yourself (at a great opportunity cost)…