Shifting from $5M residential to $7M commercial—am I missing risks?

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PhantomYuuVoid

New Member
Anon so the poors don't think they're getting flexed on.

This scenario is unrelateable to 98% of people in this group. I am well aware of that. I am hoping to see some insight from the wealthiest in the group. I want to see if I have missed anything.

I currently have a reasonable real estate portfolio. It is worth approximately 5 million dollars. About 3.6 million of this is residential investment. There is 2.2 million in debt total. That includes PPOR debt.

I plan on continuing to hold the portfolio for the next 7-10 years. In that time, the investment side should be worth around 6 million.

I plan on selling down all investment assets. After capital gains and other costs, like paying out the PPOR mortgage, I should be left with 2.4 million or more.

I want to redeploy that into a much larger commercial property.

It would be circa $6-7 million or more. I am targeting a 6.5-7% yield. That would throw off between 400K and 490K a year. This depends on the asset.

Loan costs will be approximately 216K to 250K a year. I am aware this could fluctuate over time. The result would be cashflow of around 200Kish.

I plan on aggressively paying that down over the following 5-7 years. I will use business profits and the cashflow. The goal is to get close to a fully unencumbered asset. That asset would then produce 400-490K cashflow.

Is there something I am missing in any of this process? Have I overlooked anything? Could I have thought through this better?

Should I consider a smaller asset? Or should I go larger? I'm all ears.
 
I would advise caution in allocating all available funds to a single investment of that magnitude.

Commercial and residential real estate are distinct asset classes, each with their own advantages and disadvantages.

Financing for commercial real estate typically demands higher deposits and stricter requirements.

Many large commercial properties remain unoccupied for extended durations, unlike typical residential units.

In my view, business closures appear more prevalent than the shortage of residential rental properties currently available.

Diversification is beneficial; however, I would recommend prudence whhen considering deploying your entire net worth into one investment.

An alternative approach could involve developing residential properties for resale while maintaining a balanced portfolio of both residential and commercial rental assets.
 
Hey mate, I just wrapped up a real estate course that totally lines up with what you're chatting about.

What if you just kept growing your residential asset collection over 15–20 years and let it snowball? After that stretch, you could practically buy those commercial properties free and clear and be all set for cashflow when you retire.
 
Sounds like... if you're paying capital gains that you didn't set this up in a business or trust structure. If all these properties are in your personal name you're missing out on a heap of tax savings.
 
Hold tight to your investments and go ahead buy even more residential properties!

Honestly, taking a capital gains tax loss just doesn’t pay off, and spreading your risk across different assets is way smarter than putting everything into one spot.
 
That strategy seems pretty solid! If your cash flow can handle it, maybe hang onto a bit of residential property for diversification. And it could also help to keep or pick up some higher yield stocks to balance things out.
 
I think I mixed up your payment numbers.

I’d also lean toward staying in residential property. Sure, yields may be lower, but if you bought in a few years ago, they probably haven’t changed much. And don’t forget to factor in capital gains tax.
 
Diversification is the first issue. Commercial property offers poor capital growth compared to residential, but the yields are better. Depending on your comfort with debt, you could do both, really, if you thought about your approach and considered the trade offs.
 
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