Are you a novice in real estate investing? Then you must know the difference between commercial and residential investing. This article explains all the differences and some similarities between the two. Keep reading below to find out more!
Investing in real estate is almost always a good idea. No matter the hard times this industry goes through, it always bounces back sooner or later. So, if you’re thinking about joining the market, it can be a very smart idea.
Yet, what will you be investing in? This is something that all beginner investors need to figure out before they start pouring their money into some random properties. To be a successful real estate investor, you need to make informed decisions. And, to make informed decisions, you need to know all the depths of this industry.
So, what’s it going to be? Residential or commercial properties? Well, we’re here to help you make an informed decision by weighing the pros and cons of each investment.
Commercial vs. residential real estate
First things first, let’s make sure we are on the same page when it comes to the differences and similarities of these two.
Now, before we start, let’s agree on the fact that these two categories of real estate both involve huge capital and potential risks. That’s why it’s best to understand them really well before investing. Let’s see the key aspects of both real estate categories:
Commercial real estate
Commercial real estate is the business-focused one. More precisely, commercial properties are sold, leased, or used to achieve certain business goals. In other words, with commercial real estate, you buy and then sell or lease it to businesses, joint ventures, or companies from all other industries, from retail to office, malls, and so on. You can even rent to casinos which are a big trend these days, despite the increasing number of people who play the most popular online slot machines. These days, around the world, casino real estate attracts foreign investors and local ones to many parts of the world.
Simply put, commercial real estate is anything lent or sold to run a business. Commercial real estate refers to retail buildings, office buildings, warehouses, and industrial buildings.
Residential real estate
In contrast, residential estate revolves around the needs and wants of homeowners. It involves buying and selling properties for individual use. Residential real estate involves apartments, flats, houses, and duplexes.
So, now you know what you’ll be selling and who you’ll be selling to based on the type of real estate investments you make.
Investing in residential vs. commercial properties
Now, the real question is, “is it better to invest in residential or commercial properties?”. Well, this is a very difficult answer to give because it depends. On what? It depends from investor to investor what type of clients they want to have and what types of needs they want to fulfill in customers.
Both types of investments come with certain opportunities and challenges. For example, commercial investments do promise bigger returns on investments, while residential properties involve fewer complications.
Let’s explore the pros of both real estate investment types.
Investing in residential homes
Investing in residential properties has a few certain benefits you get, which are particularly advantageous to novice investors. More precisely:
Low cost of entry
One of the biggest benefits of residential real estate is that it has a lower cost of entry and generally fewer complications. It is usually easier for beginners to start investing in residential real estate and then move forward to investing in commercial projects as well.
Decreased tenant turnover
Unlike commercial tenants, who are very volatile because businesses can always grow or shift to a new area, residential tenants tend to want long-term contracts. Thus, you’ll struggle less to find the right tenants all the time.
Less complex laws
Residential laws are generally more hassle-free and less complex when compared to commercial property laws. This is another reason why beginner investors prefer residential real estate investing.
Investing in commercial properties
As for commercial real estate investing, there are other pros that may benefit more experienced investors.
As with any type of investment, with great risk in real estate investments comes greater ROI. When compared to the returns you can get from residential properties, commercial real estate has a bigger potential of giving higher ROI, especially if the property is situated in a prime location because most businesses look for that.
Another huge benefit of commercial real estate is the fact that you have more opportunities in terms of clients or tenants. More precisely, with residential real estate, you only sell or rent to people looking for a home. In contrast, with commercial real estate, you can have businesses from all industries as clients, from retail to manufacturing or casino.
In fact, casino real estate is a real trend around the world these days. In the Netherlands, for example, although many players look for the best casino games in the Netherlands online, they also look for casino games in land-based casinos.
So, investing in commercial real estate means that clients can come from anywhere, at any time.
Last but definitely not least, with commercial real estate investing, you also benefit from having better quality tenants. Think about it: bigger budgets often back businesses, they want to look good for their customers, and they also respect the property a lot better than individuals or families. This can make your life a lot easier.
Which is better?
As mentioned above, there’s no easy answer to this question. Whether it is better for you to invest in commercial or residential properties is a matter of personal choice. However, knowing the benefits of the two can help you make an informed decision. It’s up to you which benefit motivates you to choose one type of investing over the other.