Understanding the Difference in Residential and Commercial Real Estate Investing

Investing in real estate is a challenging yet rewarding business opportunity. If you’re on the lookout for a new way to invest your money and make some additional income, real estate is a great avenue to explore. Before diving in, the first decision to make is whether you want to invest in residential or commercial real estate. Here is what you need to know about the difference in residential and commercial real estate investing.

The ins and outs of residential and commercial real estate in

Property Type

Commercial real estate is anything that can be used to make money, including office buildings, retail space, and even buildings with rental residences, usually housing with five or more units. Residential, on the other hand, can be looked at as a single-family home, rental residencies for up to four families, and condominiums and cooperatives. From an investment standpoint, the main differentiator is that with commercial, the dealings tend to be business to business, while in residential, general consumers are involved.

Generating Revenue

Investing in real estate is an excellent way to make additional income, but the type of property will dictate how you make money. When investors look to get involved in the residential real estate market, they either want to become landlords and make money off of the rental cost, or to flip the home and make a profit by selling the asset for much more than what they paid. Commercial real estate investors play a longer game. These investors make money off of a tenant’s long-term lease and depend on the success of the businesses coming into the property. In addition, commercial properties typically provide a higher annual return than residential properties.

Types of Investors

The startup costs for investing in residential real estate are significantly lower than the costs associated with commercial real estate. Therefore, virtually anyone with an inkling to get into real estate investing may find residential the more attainable option of the two. Commercial investors often have deeper pockets as investing in commercial property tends to be much more expensive due to the tendency for capital improvements and tenant allowances. Commercial investing often involves having other investors as backers, and getting approved for a commercial loan from a bank can be much more difficult.

The real estate investment landscape provides many options for making a return on your money. Regardless of the route you choose to take, having a team of advisors is vital to your success. At ALO, we work with homebuyers and real estate investors on every level. Contact us to learn more, or when you’re ready to make the next big purchase.

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