Most people who want to build extra wealth choose to invest in real estate, yet there are so many confusing terms and aspects that turn people away before investing. One large source of confusion is the difference between investing in commercial real estate or residential property. Are they the same? What are the differences?
Market Space Capital is here to answer any questions and describe each type’s benefits and downfalls. We can help you make smart investing decisions that will maximize your return, and we will help you find a real estate property that perfectly suits your profile. Let’s look at the differences between commercial and residential real estate investing:
- Residential real estate is comprised of all single-family homes and one-to-four unit rental residencies. Commercial real estate is anything with five or more units.
- Residential estate includes condos, duplexes, and quadruplexes.
- Commercial estate includes offices, retail, industrial, multifamily (five or more), hotels, and other special purpose buildings.
- Residential real estates are mainly leased to families and individuals while commercial real estates are leased to businesses.
- Commercial real estate tends to reward investors a much wider return whereas residential real estate investing gives investors more control over the property.
Benefits of investing in commercial real estate:
- Comparatively Higher Returns: When compared to residential real estate, commercial real estate cash flow and returns are far more attractive, as more space equals more tenants which equals more money in your pocket.
- Perks of Triple Net Leases: With a triple net lease, the property owner does not have to pay any expenses on the property, and all the expenses are handled directly by the lessee, including real estate taxes.
- Longer Leases: Commercial leases (mostly 5-10 years) tend to be much longer compared to residential leases (6-12 months).
- Increasing Value Becomes Easy: Residential real estate is mainly prejudiced by comparable properties whereas commercial real estate is more directly influenced by how much revenue it makes.
Benefits of investing in residential real estate:
- The Entry Cost: The cost of starting an investment in residential real estate is most certainly less than commercial real estate.
- Decreased Tenant Turnover: Unlike commercial real estate, residential real estate rarely deals with tenant turnover and volatility.
- More Lenient Zoning Laws: With a residential real estate, the rules and regulations are more lenient than commercial real estate laws and ordinances.
- Performs Better in Economic Crisis: Commercial real estate can fluctuate depending on any large-scale economic downturns. Residential real estate is relatively immune to these challenges.
Both residential real estate and commercial real estate investing have their pros and cons, so it’s important to carefully consider each choice and determine which aligns more with your business or goals. Turn to the experts at Market Space Capital to learn more about your options and make a solid decision!