A question some people tend to have involves commercial versus residential real estate. Is it a good idea to invest in commercial or residential properties? Which one is going to lead to great returns? Which one is going to be less risky over the long-term? These are pertinent questions and it’s important to do your homework as an investor.
If you are not doing your homework, a good opportunity may slip through your grasp and this is something you don’t want to have to face! Here’s more on this subject and which direction you should be going in as a modern real estate investor.
Types of Real Estate
Commercial real estate refers to a type of property that is going to be used for commerce- economic purposes. An example of this would be a shopping complex that is home to a number of stores inside. You can be the owner of a shopping complex and rent out spots inside to interested parties. This is just one example of commercial real estate but anything that is used to earn money can be noted as a commercial property.
Residential real estate refers to a type of property that is used for living purposes. This can come in either single family or multi-family forms and will vary in size depending on the structure. These are generally connected with other neighborly residences in the area and end up constituting a “neighborhood.” Please note, a residential property cannot have commercial work being done inside or it is going to lose that specific status.
Reasons to Invest in Residential Real Estate
There are many reasons to go with residential real estate when it comes to a topic such as this. You will want to weigh all of your options and in the perfect situation, it makes a lot more sense to go down this path and here’s why.
1) Less Risky
The risk that is going to be taken will be far less and that is always a positive. Sure, you are not going to have to pay as much for a commercial property but finding a tenant is not easy. There are many situations where properties can go empty and that is a complete waste of a potential asset.
This is why most people enjoy the idea of going down the residential route because there is greater demand for a place to live as everyone needs to rest their heads somewhere. This is a lot easier to manage especially in the right part of town.
2) Proven Segment of Real Estate
You are going to be dealing with a segment of real estate that is far more proven and has a lot of history behind it in most areas. Whenever a city is built, you are going to have a number of residential properties set up. This is a part of normal life and the same cannot be said for commercial properties. There are many neighborhoods where commercial properties are far and few between.
This is why you want to go with something that has a lot of information behind it so you are able to go through the data easily.
3) Less Impacted By Business World
The business world is something you may not have experience with and that is something you will want to account for. It is already challenging to deal with properties and then looking into the world of commerce is a step too far in most cases. This is why you want to keep things simple and only look at assets that are residential in nature. This will allow you to focus on the asset and not have to worry about how the markets are doing at various points of your ownership.
Most people feel overwhelmed when that is the case and it is something they hope to avoid at all costs.
4) Demand for Living Properties is Consistent
When it comes to a living property, you are looking at something that is going to have demand almost all the time. There are people looking to find a good deal and they will want to see what you have to offer. Whether or not the markets are doing well, people want a place to live and that is going to bode well for you.
The drop-off in interest isn’t going to be to the extent where you are left with no way out and that is always good. You will have more leeway in these situations even if the offers drop to zero.
5) Reduced Liabilities
Liabilities are something owners don’t think about with these assets but they do matter. When you are dealing with a commercial asset, you are going to have a lot of customers coming in and out. These interactions are going to generate a lot of new liabilities that may not have been noticed in a traditional residential property.
These are issues you may not want to have to face and they may end up becoming a real nuisance depending on the type of commercial property.
It’s important to look at all of the options as you think about investing in real estate. Remember, it is always going to come down to the situation in front of you. There are times where commercial real estate is the way to go if you find a hot buy that is going to be in demand for a long time to come. This is all about looking at all of the variables, understanding your budget, and investing with a purpose. Otherwise, you are going to be in a situation where you’re far too rigid and end up missing out.
Yes, the general rule of thumb is to stick to residential real estate but there are times where commercial real estate will work out in your favor. Think about these details and go through each variable as you hope to figure things out in the particular area you’re interested in. This is the best way to go!