Comparing Your Investment Options: Residential vs. Commercial Real Estate
What to Consider Before Making a Real Estate Investment.
Investing in real estate can be a great way to create a steady income stream and enjoy long-term growth. One of the first questions people wonder about when considering a real estate investment is whether to invest in a commercial or residential property. Both can be great investments, but there are significant differences between them that you should understand, so you can make a plan that best fits your needs.
What is Residential Real Estate?
Residential real estate refers to single-family homes, as well as multifamily properties of 4 units or less.
Why Invest in Residential Properties?
There are a few reasons why people choose to invest in residential real estate, including:
- Residential properties are usually less expensive than commercial properties, making it easier to get into the business.
- Rental properties provide a steady income stream and lease terms of one year or less allow landlords to increase rents quickly if market conditions are right.
- House flipping, that is, buying a property, renovating it and selling it quickly, can be lucrative for investors with the right know-how.
What is Commercial Real Estate?
Commercial real estate includes larger apartment complexes, office buildings, retail properties and warehouses, to name a few.
Why Invest in Commercial Properties?
Commercial properties are generally far more expensive than residential properties, but they have several advantages:
- Lease terms tend to be longer than for residential properties.
- Tenants are usually other businesses, so taking good care of their units is a smart move for them.
- Successful commercial properties have high income potential.
Are you ready to be a landlord?
Before you take the plunge, consider whether you really want to be a landlord.
- Residential landlords are responsible for any necessary repairs and things can break on weekends or holidays.
- Residential tenants don’t always take good care of the property.
- Repairs to a commercial property must be done by a licensed person.
- Owners of large properties often hire professional property management companies to handle the day-to-day operations, but this can cost 5% or more of rental revenues, reducing overall investment return.
An Easier Way to Invest in Real Estate
If you’re like many people, you like the idea of investing in real estate, but find the reality daunting. You may not have the time or desire to be a landlord, or maybe you just don’t have enough money to buy a property on your own. If that’s you, you can explore real estate crowdfunding. Crowdfunding allows you to start investing in real estate with much less money than going it alone and you can benefit from the experience of real estate professionals who select, develop and manage properties. To explore more real estate crowdfunding investment options, click here.