Let me start by saying that when I refer to residential, I am referring to both single-family and multifamily property. This covers houses and all size and shape of apartment buildings. By commercial I mean strip shopping centers, warehouses, mid-rise and high-rise buildings.
Each has its merits and can be very profitable. In fact, while we chose residential as our target deal, I by no means mean to suggest that commercial isn’t great. When you see the number one reason we chose residential, this will all make more sense. I will only look at two supposed advantages and show you why they really are not.
Investing in real estate can be a fantastic way to create wealth and build a passive income but there are some important choices you have to make along the way. The first of which is deciding whether you would like to invest in commercial or residential property. Owning commercial property vs residential is not a choice to make without knowing the pros and cons of each. In this article, we will discuss each type of investment to assist you with making an informed decision.
Let’s Begin With Commercial Real Estate Investing
In the argument of commercial real estate vs residential real estate investing, owning commercial property presents a strong case. Investors lease commercial property for business purposes rather than residential and this provides them with great opportunities.
Although the commercial property requires a bigger deposit and therefore can be more expensive up front, it can be a highly rewarding investment. Tenants tend to sign longer leases which ensures a steady income and generally, you are able to set a larger rental income, creating a larger profit.
Seen as both a pro and a con, leasing commercial property involves more paperwork and a more intricate due diligence process. While this can mean more stress initially, it provides you with dependable tenants that you can trust. These trustworthy tenants will typically keep the property in great condition as they want to project a professional image.
Onto Residential Real Estate Investing
When discussing the argument of investing in commercial vs residential real estate, the latter can be a strong choice, especially for those just starting out in the industry. The lower initial costs, reasonable risk level and higher market demand provide an attractive option for investors.
Let’s discuss these benefits in more detail. As house prices continue to rise, more and more people are looking to rent properties rather than buying. This demand is constantly increasing and it provides a huge opportunity for investors. Residential properties require a lower down-payment and present landlords with a great exit strategy if needed.
But the truth is that residential real estate investing does have some cons. Compared to commercial property, the income generated is lower and there are fewer checks conducted on residents. Leases are typically shorter too. Another one of the big fears people have about investing in real estate is the thought that they won’t be able to lease the property. Read More
Commercial Real Estate Investing Advantage: The triple net lease.
One of the big fears people have about real estate investing is the maintenance costs. People will argue that the triple net lease solves that problem. The triple net lease basically says that all maintenance costs are the responsibility of the company leasing the property. Effectively eliminating the maintenance costs.
But realize that we have almost no maintenance cost on our single-family homes too. By using the “Best Product, Best Price” business model, we put together a perfect property and then make the tenant responsible for the first $250 of any repair and 100% responsible for any negligence. This covers almost all of the maintenance costs.
On multifamily, we budget for the maintenance costs before we ever buy it. So they really have no affect on the cash flow either. So the triple net lease is really not an advantage.
Residential Real Estate Investing Advantage: People Always Need a Place To Live.
The argument is that residential is better because people always need a place to live. But think about it. Don’t they also need a place to work? Of course they do.
Commercial property leases just as effectively as residential. When they get a good anchor tenant, the owner’s doors are knocked down with people wanting to lease to be near the anchor tenant. So the fact that people always need a place to live is not an advantage either.
Then why did we choose residential?
One reason stands out. I had a mentor that was willing to teach me the ins and outs of residential real estate. He knew the best practices and best business model to most effectively invest. The most important part was his willingness to teach it to me. That made all the difference.
To this date I have never met a person who was in commercial real estate that was willing to teach me the business model and best practices. I’ve never found a business willing to teach it either. Simply put, I am not willing to take the risk involved with a “trial and error” method of learning the commercial business model. I believe in life you simply find someone that is doing something effectively and imitate them.
So the reason we chose residential vs commercial real estate investing is that simple. It’s because we know the best practices and business model to maximize our profits. I recommend this for you too. Find a mentor and do what works.
Read LessWant Some More Information?
When debating the argument of commercial real estate investing vs residential, it is important to hear from those already in the industry about their experiences. Here at Lifestyles Unlimited, we provide you with just that. By joining our free real estate classes, you are able to connect with a diverse group of investors and seek advice, support and encouragement; a fantastic help if you are still unsure of which to choose.
Interested in finding out more information? Click ‘join our workshop’ or get in touch today!
