Commercial Real Estate Versus Residential Real Estate Investing

By: Omar Johnson

There are numerous ways to invest in real estate. You can rent, flip, or fix. There are condos, homes, apartments, land, and buildings to invest in. The options are limitless.

There is, however, a great divide some investors have a hard time deciding on, residential versus commercial investing.

Residential property is perhaps most commonly what comes to mind when thinking of real estate investing. In general, residential property is a living space. This can include apartments, duplexes, homes, and condominiums.

Commercial property, on the other hand, plays home to businesses in the form of office space, retail space and other industrial type tenants.

When considering which type of investing is best for you, there are a few questions to ask. Most of us have experience in residential dwellings. After all, we grew up in homes.

You have a set of expectations for your residential rental property. You know how you anticipate it to be cared for and what assumptions you want to see in your tenants. Commercial property is a little different. We haven't all necessarily rented or owned commercial property.

What is unique about commercial property is the landlord often hands the property over to the tenant and has very little to do with it after that point. You basically have to trust in your tenant. Plus, unless you have business experience, you probably aren't familiar with the guidelines and assumptions of commercial property leasing.

With all of that said, let's look at what benefits and disadvantages come with investing in residential property.

1)In general, it is easier to rent residential property then commercial property. People always need a place to live. Businesses, however, come and go dependent on the market.

2)Financing residential property tends to be easier then purchasing commercial property.

3)If needed, you could actually live in one of your rental properties.

4)Residential property is usually less expensive then commercial.

5)Residential property can require your immediate attention when problems arise. Problems can come at any hour on any day unlike the traditional 9 to 5 business that rents commercial property.

6)As a residential landlord, you usually have to perform a lot of hands-on management.

7)If you have a single residential piece of property and you lose a tenant, you just lost all your income for that particular property until you can replace the tenant. This can cause cash flow problems.

Commercial property also has is pluses and minuses.

1)A nice thing about commercial property is the leases tend to be considerably longer then that of residential property. Where a residential tenant might sign a year lease agreement, commercial tenants usually stick around for five or so years.

2)Unlike residential, commercial property requires less management. Depending on your personality, this may or may not be desirable to you.

3)Commercial investing isn't as beginner friendly as residential. Start-up costs can far exceed that of simply purchasing a home. Even worse, if can be harder for beginner investors to secure a loan for commercial property.

4)Finding a tenant for you commercial property can be a lot harder then securing one for your residential property.

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