Knowing how to make money in real estate comes with experience; real estate investors must eliminate any chances for loss and find profitable ways to rectify any failing investment. Finding the right investment requires research and hard work on any real estate investor’s behalf. Choosing to invest in residential real estate or commercial real estate requires the real estate investor to study the advantages and disadvantages of his/her investment type, as making money in real estate doesn’t only come with a specific type of property. In fact, your real estate investment portfolio should be diversified enough to encompass residential real estate investing and commercial real estate investing as well.
What is the difference between residential real estate investing and commercial real estate investing?
Commercial real estate investing generally refers to investing capital in land or a finished building structure that can generate revenue through resale or rental income. Meanwhile, residential real estate investing focuses mainly on properties made for living purposes; a real estate investor can buy houses, apartments, or vacation home rentals. Residential real estate investing offers a safety net for individuals as they usually earn their income through rental income from investment properties and through buying a property to hold until real estate values increase.
What to expect with commercial real estate investing?
Professional tenants
When it comes to renting out investment properties, commercial real estate investors find more comfort knowing the fact that they will deal with institutions and organizations. You most likely won’t be receiving calls at ungodly hours to report leaks or issues with your investment property. Real estate investors opt for commercial real estate as they prefer dealing with a professional tenant.
Related: What’s the Top Commercial Real Estate Market in the US Right Now?
Higher appreciation
Commercial real estate tends to increase at higher rates than residential real estate. This can be mainly attributed to any developments that happen in the area that can result in attracting more customers. Landlords consider commercial real estate investing as the best real estate investments as they not only appreciate in value, but they can charge higher rents for the same property over time.
Higher rental income
It is well-known that commercial real estate costs more than residential real estate. Real estate investors usually charge a substantial amount of rent that can make this type of investment very desirable.
Related: How to Make Money from Commercial Real Estate For Rent.
A secure investment
Commercial real estate offers security to the real estate investor, as all other types of investments do. Having commercial real estate means that you don’t only own the building along with different offices and shops or apartments; you also own land with a value that stays constant as it’s not susceptible to most real estate market fluctuations.
What to expect with residential real estate investing?
The demand never ends
When it comes to people’s need for shelter, they will always be looking for a place to live. The biggest fear for a real estate investor when choosing residential real estate investing is not being able to find tenants for the property. Knowing the occupancy rates in your city and neighborhood can help you greatly in making that decision.
Lower vacancy rates
Whether you own multi family properties or single family properties, with good marketing and advertising, you can find the right tenants for any property types that you own. Residential real estate investing is considered to have lower vacancy rates than commercial real estate investments. This can be mainly attributed to the type of tenant that commercial properties attract. If a tenant wishes to leave the commercial rental, it will most likely stay vacant until a professional or a company chooses to lease it long-term.
Financing residential real estate is easier
Financing residential properties is considered a lot easier than financing commercial ones. A residential real estate investor must decide on the best approach to finance his/her investments though. It is well-known that most successful real estate investors consider their profit made at the time of the purchase of the property. Real estate investors can finance residential properties with minimal initial investments as they require down payments that tend to be of a smaller percentage than commercial real estate investments.
Related: Real Estate Investing For Beginners: Investing With Little or No Money.
Effort on the real estate investor’s behalf
Residential real estate investing requires more effort on the investor’s behalf. Any real estate investor should expect more involvement with their properties than commercial investors. Some investors choose to hire professional property management to make sure they don’t deal with such issues, but it’s always good to keep in mind that it cuts through the profitability of the investment.
How can you assess a property prior to investing, whether commercial or residential?
The best method to evaluate any potential property is to conduct a real estate market analysis. A real estate market analysis can help investors determine the profitability of their intended investment through metrics such as return on investment and cash on cash return. Such metrics can help investors decide on the best approach to finance and occupy a property.
Consider using Mashvisor’s real estate market analysis. It offers an encompassing platform that allows investors to evaluate a property before diving head first.
Related: 3 Rules to Follow When Conducting Comparative Market Analysis.
Which one is right for you: commercial real estate investing or residential real estate investing?
There is no wrong or right answer to this question. A real estate investor must study the real estate market and review his/her options to find what’s best suited for them. Consider consulting with a real estate agent, as they will have a better understanding of how the market behaves in your area and will most likely offer insight into what might be the best fit for your needs.
Residential real estate investing has been widely popular among new investors as it offers a calmer atmosphere and a reliable source of income. The main attraction remains to be the ease of getting into the field. However, creating a well-balanced real estate investment portfolio that leads to financial security requires both residential and commercial real estate investments. This requires investors to find the right investment strategy that best suits their character and personal knowledge. So, find what best suits your situation for now until you can venture into other types of real estate investments.
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