The real estate market is red hot right now. If you are looking to invest, you may be left scratching your head at whether to put your money in commercial or residential real estate.
On the surface, they may seem similar. But both come with unique sets of challenges and advantages that may not be apparent at first.
If you're interested in learning more about commercial real estate vs. residential real estate, you've come to the right place. We've laid out the differences in a quick and easy guide. Read on to learn more!
Commercial Real Estate
Commercial real estate is a property that is used for some sort of business. Generally, this refers to retail, food services, office spaces, and light industrial use.
Commercial real estate can be an excellent investment but requires some careful consideration of the pros and cons.
Commercial Real Estate Pros
One advantage of commercial real estate is that the profit margins can be incredibly high. If you are looking to re-develop existing real estate or build new, you can rent spaces out to businesses. This can be extremely lucrative.
Commercial real estate can sometimes have tax breaks or incentives by local and state governments. If you find a developing area that offers these incentives, it can make a huge difference in profits later.
Commercial Real Estate Cons
The first main downside to commercial real estate is the high barrier to entry. Commercial real estate is far more expensive than most residential properties.
Additionally, location is even more important. A home in a bad location will eventually rent or sell, but bad commercial real estate can sit vacant for years or even decades.
Residential Real Estate
Residential real estate includes condos, apartments, and single-family houses. All of these properties can be used for your own living quarters or rented out to others for passive income.
Residential Real Estate Pros
Because the barrier to entry on residential real estate is lower, you can build up a large portfolio of properties rather quickly. During an economic upswing, you could potentially double your investments by selling.
Residential real estate also allows you to collect passive income from renting to other people, either on a lease or through services such as Airbnb.
Residential Real Estate Cons
However, there are downsides to being a landlord. Constant maintenance and dealing with misbehaving tenants is common practice.
Additionally, if the market takes a bad turn, you may be left holding the bag on properties that are now undesirable. This could put you underwater rather quickly.
Commercial Real Estate vs. Residential Real Estate
Deciding between commercial real estate vs. residential real estate depends on what your finances look like and your interests. If you are more interested in building a large portfolio, residential is a better option.
However, if you are more interested in large returns on passive income, purchasing commercial real estate is an excellent option. Both come with pros and cons, so enlisting expert property management is crucial.
We offer a variety of property management services and resources. No matter where you are in your real estate journey, you can call us any time at (972)895-7508 to learn about what we have to offer!