While investing in real estate is becoming more of a topic of conversion for those looking to grow their investment portfolios, the differences between choosing to invest in commercial real estate or residential real estate are more pronounced than you might expect.
Each is fundamentally different in a few key ways. Today, we’ll explore the differences between the two types of investments and help you decide which one might be right for you.
Commercial Real Estate Investing
Commercial real estate involves properties used for business purposes, including housing developments and five or more individual residences. Additionally, undeveloped lots are often categorized as commercial real estate. Commercial real estate investments often involve longer lease terms, larger tenants, and higher rental income. They also typically have a much higher price tag and therefore a significant barrier to entry for the average person looking to invest some extra cash.
One of the main advantages of investing in commercial real estate is that the tenants are usually businesses, meaning that they are responsible for paying the rent and maintaining the property. In contrast, with residential real estate, landlords often have to deal with individual tenants who may not always pay their rent on time or take good care of the property.
Another advantage of commercial real estate is that the value of the property is often tied to the business operating within it. This means that if the business is successful, the property will likely increase in value, making it a more valuable investment over time.
Residential Real Estate Investing
Residential real estate, on the other hand, involves properties that are rented by individuals or families for their housing. This also can include residential developments such as condos, duplexes, triplexes, or quadplexes. Once the building houses more than four residences, it is then considered a commercial property. Examples of residential properties include single-family homes, apartments, and condominiums. Residential real estate investments often involve shorter lease terms, smaller tenants, and lower rental income.
This can mean that real estate investing is more approachable from a financial perspective, but there is also more frequent turnover and therefore a higher level of involvement from the investor unless they plan to hire out the job of property management and day-to-day communication in the event of an issue.
Because these types of investment properties tend to be less expensive, they also bring in a lower margin of profit for the investor compared with their commercial counterparts.
One of the main advantages of investing in residential real estate is that there is always a demand for housing, which means that the property will likely be in demand at any given time. In addition, residential properties often require less maintenance and are easier to manage than commercial properties.
Which is Right for You?
Deciding whether to invest in commercial or residential real estate depends on your personal preferences and investment goals. If you are looking for a high rental income and are comfortable with longer lease terms and larger tenants, then commercial real estate might be the better choice for you. However, if you are looking for an investment with a lower cost to purchase as well as lower maintenance and management requirements, then residential real estate might be the way to go.
It’s also important to consider your investment goals. If you are looking for a short-term investment with a high return on investment, then residential real estate might be the better choice. However, if you are looking for a long-term investment with the potential for greater returns over time, then commercial real estate might be a better fit.
Choose Your Partner Wisely
While each type of investment is unique in its demands and returns, your decision should ultimately be based on your personal preferences and investment goals. Regardless of which option you choose, partnering with a real estate professional is a crucial step in ensuring that your investment is successful. Our experienced real estate professionals are well-versed in finding the right investment property for your goals. Learn more at www.cbcelite.com for commercial real estate or www.coldwellbankerelite.com for support with residential real estate.