Commercial real estate (CRE) represents a significant step up from residential investing, offering higher returns, longer lease terms, and professional tenant relationships. While more complex, commercial investments can generate substantial wealth for investors who understand the market dynamics.
Analyzing Commercial Deals
The capitalization rate (cap rate) serves as the primary valuation metric. For example, a property generating $200,000 annual NOI with an 8% cap rate values at $2.5 million ($200,000 / 0.08). Cap rates vary by property type and market.
Starting Small
New commercial investors should consider small multifamily properties (5-10 units) as an entry point, combining residential familiarity with commercial financing methods.