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In my last article I addressed investing in real estate and spoke about my bias against single family houses and my preference for multi-unit properties (apartment buildings).

This week I will address condominiums, townhouses and commercial properties. The pros and cons will be short because I don’t/won’t own a condo or townhouse, and I do own commercial property.

Before I talk about investing in a condominium or townhouse you need to understand the general difference.

A townhouse is usually a stand-alone unit with one or more shared walls. It could have two or three levels and when you park it’s in your own unit. A condominium feels more like an apartment with units above, below and on the sides. Your parking could be in a carport or garage that is not connected to your living unit.

Both townhouse and condominium projects often have shared amenities like a swimming pool, recreation room, or exercise room. In both cases you will pay additional fees to a Home Owners Association (HOA) that can add hundreds to thousands of dollars per year in expenses beyond your loan and utility costs.

You also have very little control over those expenses imposed by the HOA, other than a vote. Those expenses can go to general maintenance and/or property management.

Here are some of the pros and cons of townhouses and condos.

Pros:

  • You have additional shared amenities.
  • You likely have a management company taking care of maintenance.
  • As of January 2021 you still have the tax deferral on sale under IRC 1031.

Cons:

  • You have almost no control over the additional expense for maintenance.
  • When real estate values and prices rise, condos and townhouses feel the impact last.
  • When real estate values and prices fall, they are the first to suffer.

Commercial property is usually defined as property with a business use such as (but not limited to) a manufacturing plant, shopping center, restaurant, grocery store, office building, storage facility, movie theatre or medical building.

Sometimes people who have multi-unit residential properties say they have commercial properties because the financing for 5 or more units is structured like other commercial loans, but I consider them residential and not commercial.

You can invest in commercial properties in several ways:

  • Limited and General Partnerships
  • Real Estate Investment Trusts (REITs)
  • Syndications
  • Triple net leases
  • Direct ownership

Here are some of the pros and cons of commercial property.

Pros:

  • You are dealing with the mindset of business people, versus tenants.
  • No one is living in/on the property.
  • You have control over the investment, remodeling, tenant selection, etc.
  • As of January 2021 you still have the tax deferral on sale under IRC 1031.
  • It is easier to evict a business versus a tenant who does not pay rent.

Cons:

  • You need a higher level of sophistication.
  • Other than REITs you may need to be an accredited investor (Accredited Investor Definition)
  • Economic conditions, like a pandemic, can also adversely affect commercial property.
  • Hopefully this brief overview from these last two emails provides some new information about the opportunities to invest in many different types of real estate other than a second house.

Hopefully this brief overview from these last two articles provides some new information about the opportunities to invest in many different types of real estate other than a second house.

If you have any specific questions, feel free to set up a time to chat using the contact link at www.WealthOnAnyIncome.com

To Your Prosperity,

Rennie