Commercial versus residential real estate properties each have different merits when it comes to investing. How you decide to invest can have a significant impact on your investment portfolio. Should you concentrate exclusively on only one type of property, or have a mix of both? These are questions that investors often ask when considering commercial versus residential real estate.
Many people think that starting with residential investments is the best way to go. Mostly this is because they are accustomed to buying homes for their own personal use. But commercial real estate can be a great way to enhance your portfolio, create tax benefits, and build wealth. Enlisting the assistance of a Menlo Group professional can help you understand the different rules and terms in the commercial market.
To get a better idea of what to consider with commercial versus residential real estate, it can be helpful to look at the differences between the two:
- Commercial property is valued differently. The income from commercial real estate is directly related to its usable square footage. This is not always true with residential real estate.
- Commercial real estate can diversify risk. If you own an apartment building, for example, and you lose one of your 10 tenants, you only lose one-tenth of the income for that property. You would lose the entire rent if you lost a tenant in a single-family house.
- Cash flow is often more significant with commercial real estate. The yield is often higher per square foot and on an initial investment basis than it is in residential.
- Commercial property leases are generally much longer, which can help to stabilize your cash flow.
- Commercial real estate is valued differently than residential real estate. Banks typically want a higher down payment for commercial.
While there are many differences, commercial versus residential real estate investment properties do have one similarity. They are both susceptible to foreclosures. Banks do not have any interest in owning commercial property any more than they do residential.
Whatever you decide, it is important to do your homework. At the Menlo Group, you can count on us to assist you with any questions you may have. As experts in the commercial real estate business, we can guide you through the ins and outs of real estate investment and help you better grasp the nuances of commercial versus residential real estate.