If you’re attracted by the potential of real estate investment, you’re not alone. In fact, it’s potentially the most lucrative field of investment in the known world, and shows no signs of slowing down any time soon. However, many would-be investors remain conflicted over whether to pursue commercial real estate, or residential real estate, and have trouble deciding which path is best for them.
Certainly, both options offer substantial benefits, providing you, as an investor, with a plethora of choices. It all depends which one feels more natural to you on a personal level. That being said, you’ll want to know the distinct advantages of both commercial and residential real estate before you decide where to place your money.
ADVANTAGES OF COMMERCIAL REAL ESTATE INVESTING
1) Higher Return Potential
Commercial real estate represents a broad swathe of property types such as office buildings, retail spaces and warehouses, which means they often represent higher income potential. This is especially true as it relates to the scale of a business. Larger entities will inevitably require more squar footage to operate and do business, which means the potential for greater rental revenue. Also, commercial real estate leases are very often for prolonged periods of time, which means greater stability for investors, as well as the potential for increasing rent on a fixed timetable.
2) Tenant Professionalism
Commercial properties are meant to effect solid business growth, which means owners tend to be focused heavily on discipline, structure and maturity. This is especially true of companies who have been in business for a long period of time; a testament to their successful approach. These tenants are usually far more professional and understanding of the relationship with the commercial property owner, making for smoother interactions and a better relationship. Long-term leases and rent escalations may also be included in commercial contracts.
3) A More Diverse Investment Portfolio
Investing in commercial real estate is an opportunity to take advantage of various diversification benefits, each with their own unique advantages. Different sectors such as retail, office, or industrial business models will each perform uniquely, based on economic conditions. Not only is it a great way to learn the tricks of the commercial real estate investing trade, but it can help you broaden your investment portfolio over time by knowing when, and where to invest your money in different spaces.
4) Professional Management
Commercial prperties are more complex than residential housing, especially for certain sectors like industrial, medical, etc. For that reason, they tend to require a greater and more precise degree of professional management, and investors may need to engage property managers with experience in commercial real estate. This is a good thing, as it can take a huge burden off of the investor so that they may refocus their efforts on more lucrative prospects. It also guarantees that each piece of real estate will be governed by a manager with your best interests at heart.
ADVANTAGES OF RESIDENTIAL REAL ESTATE INVESTING
1) Accessibility
Residential properties such as single-family homes, condos or apartments are typically more accessible to individual investors. They also require lower upfront capital, making it easier for individuals to enter the market. If you’re new to the world of real estate investing, or you feel you aren’t quite ready to jump into the more complex world of commercial real estate, this may be a perfect place to start. At its heart, residential real estate investing involves the same basic principles, yet they are built on a foundation that is much easier to grasp and understand.
2) A Large Tenant Pool
Obviously, residential properties are there to attract individuals or families looking for a place to live, which means there’s always going to be tenants who are ready and willing to apply. While some tenants may stay for years, others may wish to move on after just a year or two, with potential new tenants waiting for their chance to move in. Therefore, rental demand tends to be remarkably consistent, especially in urban areas, and vacancies can be filled relatively quickly.
3) Market Stability
Residential real estate tends to weather the storm of both mild and severe economic fluctuations when compared to commercial real estate. Since individuals and families always require a place to live, the overall market enjoys a heavy degree of stability nearly all the time. Any hiccups tend to be short-lived, at which point the market evens out again. Plus, landlords may always negotiate with tenants for a win/win scenario, even when demand is low.
4) Professional Management
While landlords may choose to handle the management of their properties on their own, many instead opt for a professional management company to handle the duties. This is a fantastic option for investors with more than one piece of real estate in their portfolio, and seeking to expand ever-further. By having a professional handle the job, investors can leave those duties in capable hands while they move forward with new investment opportunities. The result is dividends paid for years to come, not to mention happy tenants.
CONCLUSION
The choice of whether to invest in commercial or residential real estate is largely a matter of personal preference, and how far you as an investor are willing to go. When in doubt, consider residential real estate as a great avenue to get started and learn the ins and outs of the trade. From there, you’ll be free to migrate into commercial real estate so that you can diversify your portfolio even further.
If you still require some assistance in making your decision, contact Fine Homes Real Estate today. We’ll analyze your experience, goals and financial strength, and make recommendations on where we think your money will generate the best ROI.
