Real Estate is made up of many parts and forms. However, they can all be classified under two major divisions which are Commercial Real Estate and Residential Real Estate. Both divisions of real estate have their pros and cons and the choice ultimately lies in the investor in deciding which they want to invest in.
In this article, we will be analysing the differences between commercial real estate investing and residential real estate investing. This analysis should help guide you in making the best investment decision for your real estate business.
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What Is Commercial Real Estate Investment?
Commercial real estate investment involves investing in buildings slated for commercial purposes. In this case, buildings are let out or leased out to businesses and not just individuals or families. Commercial real estate investment usually requires larger capital and is not necessarily a good investment option for beginners.
What Is Residential Real Estate Investment?
Residential real estate investments are carried out in buildings marked out for residential purposes. It involves investing in rental properties that can be let out or leased to individuals and families for accommodation. It is relatively cheaper to invest in and is a common type of real estate investment.
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Differences Between Commercial and Residential Real Estate Investment
- Types of Properties
Commercial Real estate properties are usually more expensive to purchase but their insurance and tax expenses can be transferred to tenants. Its type of properties include offices, industrial properties, retail shops, parking lots, hotel buildings and any other properties used for commercial purposes.
Residential properties are not so expensive to purchase but they come with more responsibilities in the areas of property management, landlord duties as well as stiff competition due to its low entry barrier. The properties in residential real estate include single-family homes, multifamily rental family homes and duplexes.
- Income Streams
Commercial real estate promises a larger income stream as it has to do with renting to businesses instead of individuals. It is also susceptible to economic downtimes and income flow could be very volatile in the face of such events.
Residential real estate on the other hand involves renting to individuals and has a more steady income flow. Although proper research must be carried out when getting new tenants to know their payment history and other relevant information. Residential Real Estate is not prone to decreased income flow regardless of any economic cycle.
- Lease Terms
Commercial buildings are usually leased for a long time usually ranging from five to ten years. And the tenants are usually easier to coordinate seeing that they are corporations or businesses.
Residential buildings are leased within a shorter time frame which usually falls between six months to one year. In residential investment, tenant management is required to ensure the property is well maintained and rules followed. Investors usually play a more active role here than in the commercial aspect.
- Building Cost
Commercial Real Estate is usually costlier to develop as features required to suit the purpose are mostly expensive. Residential buildings are cheaper to construct. Although there are still features suitable for tenants who would be staying in the residential building, it’s usually not as expensive as commercial building constructions.
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Each of these types of real estate investments has its advantages and disadvantages. A real estate investor must weigh in on both options before deciding the investment to go for. He must decide which one aligns with his goals and visions for his portfolio. At MKH Investment, we help you make profitable real estate investments in properties with high appreciation value potential. You can contact us by clicking here for more investment.