Commercial Real Estate Investing vs Residential Real Estate Investing
Not all real estate investments are created equal, which is why it's important to determine which type of real estate you should focus on for your portfolio. As you delve into the world of real estate investment, consider the many differences between commercial real estate and residential real estate.
For starters, you need to understand what commercial real estate and residential real estate are. Commercial real estate is a piece of property that is primarily used for business purposes. One important differentiator to note is that people never live in commercial buildings. Residential real estate is a property that is primarily used as living spaces like apartments.
Here we’ll conduct a deep dive into the differences between commercial and residential real estate to help you develop a more concrete understanding.
The Pros and Cons of Commercial Real Estate Investment
Commercial real estate investment can be a lucrative endeavor if you do it right. There are a few noteworthy pros and cons of investing in commercial real estate to be aware of:
- Pros – Commercial real estate offers higher financial gains than residential real estate, giving you more earning potential. In addition, these properties require less maintenance than residential buildings. This is because tenants are typically invested in keeping the property in good working order and most maintenance calls take place during business hours.
- Cons – Commercial properties cost more than residential real estate, so you will need to have more cash available to pursue this endeavor. While there are higher financial rewards, there also are more risks to be aware of, such as higher liabilities.
The Pros and Cons of Residential Real Estate Investment
There are many opportunities to invest in residential real estate, which is one reason why so many people are interested in it. Just like with commercial real estate, there are some pros and cons you need to know before purchasing a residential investment property:
- Pros – Residential investment properties are easier to acquire, not only because there are more residential properties on the market, but also because they require less capital to purchase. In addition, residential properties have low vacancy rates, compared to some commercial buildings that are more difficult to find tenants for.
- Cons – Residential real estate properties require more hands-on care. When you become a residential property investor, you also become a landlord. You will need to respond to requests from your tenants, which can come up at unexpected and inopportune moments.
Roles and Responsibilities of Commercial and Residential Real Estate Agents
Most real estate agents specialize in specific property types, so you will want to choose an experienced agent who is familiar with the properties that you are interested in purchasing. These are the roles and responsibilities of commercial and residential real estate agents:
- Commercial Real Estate Agents – Commercial real estate agents work with clients who are interested in purchasing, selling, or leasing commercial properties. Some of their roles and responsibilities include analyzing and comparing properties for their clients, and negotiating purchase agreements, sales agreements, and lease agreements. They also rely on advanced marketing skills to promote their available properties to motivated buyers.
- Residential Real Estate Agents – Residential real estate agents work with clients who are interested in purchasing or selling residential properties. These can include single-family homes, townhomes, and condominiums. The roles and responsibilities of residential real estate agents include searching through available listings, narrowing down options for available properties based on a client's criteria, creating marketing materials for homes they are listing, and negotiating purchase and sales agreements. Residential real estate agents work with both investors as well as clients who are interested in finding a home to live in.
Commercial vs Residential Building Costs
In some cases, property investors are interested in new construction buildings, so it is important to understand the difference between commercial and residential real estate building costs. Here is what you need to know:
- Commercial building costs are typically much higher than residential building costs. Even commercial buildings that are similar in size and scope to a residential property will cost more to build. This is largely because of the specialized equipment and amount of labor that is required to construct a commercial building. In addition, commercial buildings must adhere to different compliance standards and regulations that residential properties do not have to adhere to, which can drive up construction costs.
- Residential building costs are much lower than commercial buildings, and financing can often be easier to obtain for residential real estate. However, real estate investors are often at the mercy of the current market conditions. In addition, supply chain issues and labor shortages can slow down the time it takes to build a residential property in a community.
As you seek to build your investment portfolio and grow your wealth through real estate, it's important to partner with a commercial realty group that can guide you, advocate for you, and ensure that you enjoy success. The right commercial realty group will give you the confidence you need to take the next step in your investment journey.