Barbara Corcoran, Grant Cardone, and Dottie Herman are in consensus that real estate is still the best way to build wealth.
But which type is better?
The answer isn’t straightforward and depends a lot on you.
Here’s how to decide between commercial vs residential real estate investing.
Commercial vs. Residential Real Estate Investing
A newcomer might see “real estate” as just “real estate.” But when you start to entertain the idea of investing in real estate, you’ll quickly realize that there are many layers to the real estate game. The first layer is breaking down the types of real estate.
Commercial and residential real estate are very different. Residential real estate consists primarily of single-family homes.
Apartments buildings can be categorized as commercial real estate, but more often they are in their own category called “multifamily.”
Retail, office, industrial, and multi-use buildings all fall under the umbrella as commercial real estate. Basically, any property used primarily for business is a commercial property.
Ease of Entry
It’s much easier to get into residential real estate than commercial real estate. It’s a little easier to understand because it’s more relatable to most people. Since we all live somewhere and know what our tenants expect.
Commercial real estate requires a lot more money upfront and even more cash flow to maintain properties.
Knowledge and Education
Depending on where you live, the regulations for investing and owning commercial property might be stricter than buying and renting residential property.
Commercial contracts are also a lot more complicated than residential ones. Regulations for buildings and tenant relationships are also completely different.
So it helps to have a background in business, law, economics, or real estate if you want to be successful in commercial real estate.
Risk and Reward
Commercial real estate requires a bigger initial investment but has a much higher potential for investment. Commercial leases can also be more reliable. Since your tenants are businesses that likely don’t want to continuously change locations.
Residential properties are less risky for a few different reasons. They require less money to invest in, but how much of a risk this is to you depends on how much of your savings you’re spending on it.
Residential properties also tend to remain more stable during economic uncertainty than commercial properties do.
But, your tenants are people, who can be flaky.
Understanding your market and what motivates the decision-making process for your target audience makes all the difference. This goes for residential and commercial real estate.
For example, if you’re leasing a residential property in a college town your approach will be completely different from leasing in a retirement community. But again, understanding your market in residential is easier because it’s relatable.
To buy commercial real estate like a pro, it’s almost necessary to have some prior knowledge of the industries and styles of businesses you’re trying to attract.
Are You Ready?
The effort, time commitment, professional network, and your overhead for hiring help are all additional factors to consider when debating between commercial vs residential real estate investing. But if you’re considering any type of real estate, you’re on the right track for increasing your wealth.
Commercial real estate requires a lot more money upfront and you even have to take help from a hard money lender to maintain properties.
Click over to our home page for even more tips on property ownership, maintenance, and management.