Are you contemplating real estate investment or do you already have property investments and you’re considering broadening your portfolio? If your answer to either question is “yes,” it’s inevitable that at some point, you will compare residential and commercial property investing.
We thought it’d be beneficial to help you do that. Let’s start with definitions:
Commercial Real Estate
Generally speaking, commercial real estate is property overtly intended for investments or income. While it can include residential rentals (usually of five or more units), it is more commonly understood as property that offers office and retail space in industrial-style buildings.
Residential Real Estate
Residential real estate (which we specialize in) is just that: investment properties that provide single or multi-family rental residences and are considered residential in nature. Condos and other cooperative units are included in this category.
Pros and Cons of Commercial Property Investments
We can’t provide a comprehensive list here, but commonly touted pros and cons of commercial real estate investment include:
• Longer-term leases
• A greater rental income
• Financially strong tenants (theoretically)
• Consolidated management (easier to manage a 10-unit building than 10 separate units)
• Higher start-up costs
• Deep pockets or more investors required
• More hoops to jump through for the bank
Pros and Cons of Residential Property Investments
• Reasonable/attainable start-up costs (that’s why people often start their real estate investment careers in residential)
• It’s relatively easy to find tenants (and good tenants, at that)
• It involves some creativity and passion
• There is more flexibility in how involved you want to be (especially when you work with a strong property management company)
• You may have more frequent lease turn-over
• If you have multiple residential (like 10 or more) mortgages, it could potentially impact your credit score
• More properties mean more work (if you intend to do it all yourself)
This should give you a general idea of how commercial property investments compare to residential property investments. But remember, the challenges you face in residential investment properties are challenges that are more easily remedied than in commercial investment properties. Why? Because you have more control over them.