Real estate investing is tricky if you have never done it before. What type of property do you invest in? What part of your country (or other countries) is performing the best? Is there really a difference between investing in commercial or residential real estate?
Answering these questions is vital for making the right decisions.
What is the Difference Between Commercial and Residential Real Estate?
So, let’s explore the difference between commercial real estate and the residential equivalent.
Commercial real estate is what we’d call an “umbrella term”. This means that it encompasses different parts of the market, such as industrial, retail and office properties.
These properties come in different sizes, appear in other areas and all appeal to unique customers. To put it simply, any property which has an explicit use as a business premise is commercial real estate.
On the other hand, there is residential real estate. This is all about housing, specifically housing which is rented but not occupied by the owner. This means that any building or space created for just living is, therefore, residential real estate.
It is important to know that there is an overlap, which refers to multi-use properties – those buildings that can be commercial and residential real estate depending on the need.
Is There a Preferred Option?
Is an investment in commercial property better than residential?
Yes, but also no. It’s complicated.
Real estate is an asset that yields reasonable returns when you hold them for a period of at least two years. Both types of real estate have this characteristic. Residential real estate might be easier for newcomers and may even have better customization options for a portfolio. However, there are differences between the two.
When making an investment, you’ve got two main options. You either invest commercially or residentially. It is possible to do both, but it’s all down to your situation.
A residential home can be more work than a commercial one, which is important to consider.
Things to Consider With Commercial and Residential Real Estate
With both residential and commercial real estate investments – there are things to consider.
With residential options, the investor has to purchase and own the asset on their own. A family member might be brought in as a co-investor, but it is usually a solitary endeavour.
You also run the risk of not getting the chance to interact with investors using residential properties.
The main appeal of residential investment is its ease of use. You have to invest less, and there is less paperwork involved.
Commercial real estate is harder for a single investor to break into. The initial investment you have to make is a lot bigger, and you will need proper experience with supply and demand to identify the benefits.
A property investment farm is a useful tool in this case. These are companies which do all of the lifting for you, and can help pick an investment option. Generally, this is also a much more profitable enterprise too. Commercial real estate tends to have a higher ROI (return on investment), which can be enticing.
Final Thoughts
So when it comes to residential and commercial real estate, it’s important to consider your specific situation.
Generally, residential real estate owners will find it is easier to get into and start with. It’s also often the case that when it comes to real estate, residential might be easier but yields a lower return on the investment.
Commercial real estate can be a good option if you’re working in tandem with other investors. However, for a solo investor, breaking into the industry can be risky, difficult, and often financially demanding.
