If you’re thinking about investing in real estate, your goal is simple: you want to earn a hefty profit by either producing cash flow or through the appreciation of the property.
But which route will take you there faster, investing in commercial or residential real estate?
In this article, we will compare the two approaches so you can decide which direction is best for you.
What’s the difference between Commercial Real Estate and Residential Real Estate?
Any property that is meant to be used for business purposes can be considered commercial real estate. Commercial real estate (CRE) includes all kinds of properties that can be used for retail, office, or industrial purposes. Residential real estate (RRE) refers to properties that are meant to be lived in.
But which way will work better?
Your choice between CRE and RRE depends on your economic situation and what you are trying to accomplish.
Here are some details that might influence your decision.
1. Ease of entry.
Residential real estate is easier to get into as an individual. You can purchase a property on your own and rent it out without having to get other investors involved. With commercial real estate, it’s a little harder to get into as an individual because you may need to team up with others to raise the required funds.
2. Amount of investment required.
Commercial real estate requires a larger investment upfront for several reasons. For example, most mortgage lenders require a larger down payment for a commercial property.
3. Simplicity vs. complexity of the deals.
One of the biggest benefits of residential real estate is the simplicity of the deals. Of course, you need to draft up an agreement if you are going to lease out your home, and there is a lot of work and know-how involved when you flip a house, but for the most part, it is more straightforward than commercial. Commercial real estate deals can be very complicated because there are more units to deal with at once, multiple layers of leases to inspect, more tenants to work with, inspections, insurance, zoning, commissions, and other legal issues.
4. Type of tenants.
Residential real estate will attract families and individuals, while commercial real estate will attract business owners as tenants. Who do you enjoy working with? Another thing to consider is how “qualified” the tenants are. When renting out single-family homes, duplexes and condos, it can be hard to predict whether the tenants will stay for a long period of time or whether they will do a good job maintaining the property. Commercial tenants tend to be businesses with companies behind them and they are more likely to have the resources and staff to keep the place in good shape.
5. Return on investment.
Commercial properties have a higher rate of return because there are more tenants in each property, which means there is more potential for earning money.
Residential real estate is easier to get into and is less complicated. Commercial real estate is more lucrative.
There is an easy way to get the best of both worlds.
It’s a fact that commercial real estate requires more money to get started and there are more legal issues to deal with. But it is easier than ever for individual investors to take advantage of the opportunity and for residential real estate investors to transition to commercial real estate.
BG Wealth Properties is a growth-oriented real estate investment company owning interests in both commercial and residential buildings and short-term vacation rentals, located in Canada and in the US. You can enjoy the profits that come from both commercial and residential real estate by simply investing in our funds. Click here to contact us to find out more.
