Every beginner real estate investor wants to start making money in real estate as soon as possible. However, the first step towards this goal is to choose whether to deal with residential or commercial real estate investing. Both types of real estate are challenging as well as rewarding. Yet, is commercial real estate investing better or worse than residential real estate investing? Curious to find out what is the best way of making money in real estate? Keep on reading!
#1 What is Commercial Real Estate Investing?
The first thing you should know about commercial real estate investing is that it is a very profitable business. Moreover, most of the people who rank as the wealthiest people are dealing with commercial real estate investing.
But still, what is commercial real estate investing? Well, commercial real estate investing is any non-residential real estate investing that is used only to do business. For example, if a commercial real estate investor is buying an investment property to make money by renting it out, using for investments, or for purposes other than residence, the investment is considered to be commercial real estate. Commercial real estate covers office buildings, retail properties, shopping centers, hotels, etc. In a nutshell, commercial real estate investing covers almost all types of properties except the single-family homes and multi-family homes up to four units.
#2 What is Residential Real Estate Investing?
Residential real estate is all about providing accommodation for tenants to live in. Any property that is used for non-commercial purposes may be seen as a residential property. This consists of multi-family homes (two to four units), single-family homes, condos, apartments, etc.
Investing in residential real estate is seen as a great way of making money in real estate. The biggest advantage is that everyone can enter this market without having an official education. All you need to do is to select the best real estate investments, buy the chosen property, prepare the property and rent it out.
Want some of the best residential real estate investing tips? Make sure to read “Commercial and Residential Real Estate Investing Tips.”
#3 Strong Sides of Commercial Real Estate Investing
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Higher Return on Investment
Commercial real estate investing is able to guarantee higher return on investment, when compared to residential real estate investing. On one hand, the average return on investment of residential properties (single-family homes) is usually between 1 – 4%. On the other hand, the return on investment of a commercial property ranges between 6-12%. Consequently, investing in commercial real estate will allow you to start making good money in real estate.
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Less Competition
A residential real estate investor needs relatively small initial capital to begin investing in the best real estate investments. Therefore, this real estate market is an extremely competitive place. The number of real estate investors is constantly growing. As a result, only the most successful real estate investors are able to make a fortune and successfully grow their real estate investment portfolio.
With commercial real estate investing, the talk is different. Many real estate investors skip the opportunity to enter the market as it requires a large number of financial assets. Nonetheless, banks are more likely to lend money for a high performing commercial property than a residential one. Another important thing to note is that a commercial real estate investor has no limit on the number of commercial properties he/she owns.
#4 Strong Sides of Residential Real Estate Investing
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Higher Demand
One of the main reasons why becoming a residential real estate investor is the better option is due to the fact that there is a huge demand for income properties. People will always need a place to live in. Consequently, there are two ways you have the chances to get accommodation- either you buy a property or you rent it. Therefore, you can be involved in residential real estate investing as a landlord, fix-and-flipper, etc. This investment strategy is extremely profitable if the location has a high demand from people seeking accommodation.
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Easier to Finance
Financing investment properties is always a big concern for investors, whether dealing with residential or commercial real estate investing. However, to receive financial help for residential income properties is not as hard as it might seem. There are many ways of financing investment properties. A residential real estate investor may apply for a traditional mortgage loan, hard money loans, enter partnerships with other investors and many more.
Furthermore, you are able to get the loan for the income property with only a 20% down payment. Moreover, as the sum is not as big, you will be able to select the best real estate investments and still be able to receive the financial assistance you need. Another, strong side of residential real estate is that you are often able to purchase a house below its market value, which does not really happen in commercial real estate investing. Curious to find out about your options for financing investment properties? Make sure to read “4 Investment Property Financing Methods.”
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Easier to Sell and Buy
The steps of selling and buying income properties are simple to follow, once you understand how the current real estate market works. All you need to do in order to buy/sell investment property is to know the price of the house. You also need to know how much the repair costs will be and calculate the value of the investment property after the repairs. Additionally, if you are buying an investment property in order to rent it out, you should estimate the approximate rental income this property might generate. This might take some time to calculate. However, if you use Mashvisor’s investment property tools, you will be able to find all the details about the best real estate investments in a few minutes.
Interested to learn more about selling real estate investment property? Make sure to read “Your Guide to Selling Real Estate Investment Properties.”
#5 Which Is Better or Worse: Residential or Commercial Real Estate Investing?
Even after reviewing the strong sides of both types of real estate, it is hard to say if commercial real estate investing is better or worse than residential real estate investing. Everything depends on the personal preferences of a real estate investor. As it is well known- one size does not fit all.
However, if you are new to investing and your real estate investment portfolio is still in the process of development, becoming a residential real estate investor might be the better strategy for you. Moreover, when dealing with commercial real estate investing, an investor should be fully aware of the complexity of the projects. Consequently, if you have an official education in the field of real estate, then commercial real estate investing might be the more prosperous choice.
To learn more about all aspects of becoming one of the most successful real estate investors, continue reading our blog.