Should You Invest In Commercial or Residential Real Estate During COVID?
Given the current situation of the world, many people are wondering what is going to happen to the real estate market? Will it be taken down, will it keep going up? I think it will best suit us to look at how the individual types of real estate investments are valued as well. For example, with residential property, generally you will see that prices go up or down depending on the supply of homes in the market and the demand for those homes. If you couple that will panic selling at discounted prices, along with foreclosures and short sales, then comps can end up bringing prices down. If you are looking at commercial real estate, generally, these properties are valued based on the net income of the property instead of the other comparable around the real estate. For example, if you increase the net income of the property, generally that will lead to an increase of property value in the commercial real estate world.
How Is My Property Valued?
In the current scenario we also have to look at the residential real estate rentals market. Meaning that if you are a Landlord what is the likelihood that you will lose rents during this time or be stuck to your Tenants because of the lack of ability to evict currently? If you are looking at commercial real estate, the businesses for the most part are shut down and therefore not able to pay their rents and it can really take down the values of properties if their NOI is not kept up since that is a basis on how commercial real estate values are derived.
What Property Should I Purchase?
The property that should be purchased is the property that you are most comfortable with. Run the numbers. Analyze the property yourself and see what would be the best for your individual situation. That being said, right now it seems that the housing market is hot at least here in Bakersfield. People are moving from out of town which is bringing the market up and on top of that people will always need a place to stay. Sometimes they will be able to splurge on their living situation and sometimes they will have to downsize on their living situation, but it will always be needed.
For commercial property, there are definitely caveats to the different sectors of the market. For example, right now retail real estate is taking a huge hit because with COVID a lot of businesses can’t even open, and the rest are working on reduced customers with increased expenses. If you put that against the medical real estate sector, we are seeing a growth in those properties as the population ages and there is more need for medical care, and for the most part medical care needs to be done face to face.
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