Real estate investments are great ways to diversify your investment portfolio.
If you are new to real estate investing, you may be asking yourself if you should invest in commercial real estate or residential real estate. While both commercial and residential properties can be good investment opportunities, it’s important to know the differences.
Commercial real estate includes everything from office space to warehouses to raw land. To learn more about the different types of commercial properties, visit this post.
Some of the benefits of commercial property investments over residential include: longer lease terms, profitable rent and CAM charges, paid improvement by tenants, and greater collateral. Oftentimes, commercial properties generate greater and more steady cash flow. Many investors prefer this option. However, purchasing commercial real estate can require a larger payment upfront.
In addition to the earning potential and capital requirements, you will want to consider the management involved. Some investors choose to be the property manager meaning they are involved in the tenant needs, maintenance, etc. Others choose to hire a property manager and are hands-off in day-to-day matters.
Investing in residential real estate often means you are dealing with one tenant per property, which can be less stressful than working with multiple tenants in a commercial property. However, there is more risk involved.
If you rent out a single-family home and the tenant moves out, you will not make any money until a new tenant moves in. With a commercial property, like an office building or strip mall, if one tenant moves out, you are still making money from the other tenants.
Choosing between commercial and residential real estate comes down to what will best fit your risk tolerance, available capital and desired returns. If you are interested in the highest returns, you will want to consider commercial investments. If you’re looking for an investment with less upfront capital needed, you may want to consider residential.
Prior to investing in real estate, you should consult a local real estate firm. Our team is happy to discuss your options and help you find the right commercial property investment opportunity. Contact us today.