Residential vs. Commercial Real Estate Investment

Are you thinking of investing in real estate but you are not sure where to start? Well, don’t worry as we will display the difference between the two best types of real estate investment to assist you with your decision.

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What is real estate investing?

Investing in real estate is the way you get income and is intended for investment purposes rather than residence, meaning buying a house or a commercial store for investment.

Which is better: investing in commercial or residential real estate?

Most people are interested in real estate investment as it is the most profitable and secure sector. First, you need to know what attracts customers more, is it residential or commercial real estate, and why? Read this article to learn the difference between investing in commercial and residential real estate and which one is better.

Several factors influence your decision of the best real estate investment types, including:

Types of Real Estate Investment

There are two types of real estate; commercial and residential. When you invest in offices, shops, or commercial lands, it is called commercial real estate, but it is called residential real estate if you invest in buying an apartment or villa.

Real estate types-

1- Commercial Real Estate.

2- Residential Real Estate.

You need to understand what every real estate type means and the pros and cons of each before deciding to invest in any of them.

Definitions:-

A- commercial real estate:-

Any kind of property that doesn’t include the housing of one single-family, hence, it includes office buildings, residential buildings with more than five units “multi-family property”, industrial properties, and retail properties.

B- Residential real estate:-

They are the properties that are used for residential purposes only (apartments, villas, condos, duplexes…etc.)

The only thing that is similar between residential and commercial properties is that they are both types of Real Estate and that’s it.

Differences between Commercial and Residential real estate:-

1- Commercial real estate:-

Pros:-

**Owner doesn’t have to deal with expenses that have to do with maintenance and repairs since the tenant will deal with all of this the way that suits his business best and make it look good.

**Good cash flow for a long period of time since the lease is usually for longer periods than the residential properties and could reach 5 years and even more with a chance of extending it.

**Property owner doesn’t have to deal with tenants (if the investment is huge, such as a retail building), their problems, or collecting rents since big investments such as commercial properties will be handed to a property management firm that handles all these issues you.

**Tenants are financially strong.

Cons:

**Investing in commercial real estate needs an enormous amount of money as they cost a lot.

**Considering that tenants rent the place to run their businesses, in bad economic conditions these businesses could lose a lot which will cause them to empty the place maybe even before the end of the lease which leaves the owner with a vacant space with no one to rent for a long period in addition to having to cover the outgoing costs till there is a new tenant.

**As we said, a lot of cash is needed to invest in this kind of estate since bank loans for commercial properties are less than this given to residential ones, so you have to have your pockets more than half full for that kind of investment.

**Sometimes it is difficult to find tenants who are willing to pay the amount of money you are requesting for rent.

**It is difficult to sell it since the demand for such properties is not high enough.

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2- Residential real estate:-

Pros:-

**It’s easier to find tenants in that type of investment as people are always looking for a place to live in.

**Investing in residential properties doesn’t cost as much as a commercial estate.

**The cash flow might not be as high as that of the commercial properties, however, it’s continuous since people will never cease to look for a place to live in.

**Regardless of the economic conditions, the place won’t be vacant however, rental fees might be reduced but space will always be rented.

**It’s easy to sell residential properties, especially if they are in a very attractive area close to all the vital spots and have many facilities.

Cons:-

**You will have to deal with tenants’ problems yourself, since hiring a property manager can cost you more than the rental fees.

**Some tenants don’t pay rent at the time and some don’t leave when their lease ends.

**Some tenants misuse the space which will cost you a lot for the repair and maintenance works before the next tenant moves in.

The above merits and demerits are some and not all, but they are the most important outlines you need to know before you decide to invest in any of the above types, however, you need to understand that no investment is better than the other as each one of them serves different purposes and needs.

The investment objective

Your choice of real estate investment is determined by your goal. Are you looking for a place to live in the future? Or Are you seeking income?

The cost

Many factors play an important role in the property price. For example, the location and services are among the most important needs that may be attractive to tenants or those looking to buy a property, while those looking to rent a commercial property may require that the property be close to bus and metro stops.

Stability

Investment in residential real estate is more stable than commercial real estate, when an economic crisis occurs, the demand for commercial real estate may decrease.

Financial return

The return on commercial investment is frequently higher than the residential. Over time, the price of the commercial property rises rapidly, while the residential property rises slowly.