When people first think about real estate investing, flipping or renting single-family homes are often what comes to mind. However, there are higher quality opportunities to be found in the commercial real estate market, and it may be easier to get involved than you think.
Let’s take a minute to cover the differences between commercial and residential properties, along with the reasons why you might choose one over the other. Also, we’ll unpack how you can get started, and whether or not a real estate investment fund may be a good fit for you.
At the foundational level, commercial property is typically an asset that is used to generate business or produce goods. Beyond this simple concept, a critical factor in determining the classification of an investment property is how it’s zoned. Generally, certain commercial and residential real estate types aren’t intermingled—rarely are factories built in residential areas.
But sometimes, the definitions of properties are blurred, as with multifamily residential rental properties, which are commercially-zoned properties that serve a residential function. These properties are still classified as commercial because they’re multi-unit complexes that are built and sold to generate income for the property owners. Generally speaking, there are five categories of commercial property to invest in:
There are five core property types that primarily make up commercial real estate. Each of these property types comes with merits and drawbacks that may suit some investment goals better than others. The five core types of commercial property include:
The primary way a property is classified as residential is by city zoning at the local level. These ordinances dictate that the property can only be used for housing purposes and not business. Of course, the lines are blurred sometimes, as with multi-family properties like duplexes, which aren’t technically commercial property despite mostly being purchased as income-producing real estate. The distinction between residential and commercial properties is typically 4 units; at 5 units or more, the property is zoned commercial.
For most real estate investors’ purposes, residential properties are single-family residences, often flipped or rented to tenants one deal at a time. With that said, some real estate investments like shares in trust deed funds may enable you to invest in a pool of residential property assets, spreading your risk exposure.
Residential real estate investing often has the benefit of tenants that have a strong incentive to pay their rent every month. Loans on properties also are typically easier to acquire, and with more favorable terms. There’s also considerably higher deal volume and shorter market times for residential property compared with commercial property. If real estate investors want to flip multiple properties per year, residential real estate can provide many more opportunities than commercial. That said, deal sizes are considerably smaller, and the risk of losing your capital is greater.
Depending on your investment goals, there may be reasons one particular class of property is a better choice than the other.
For investors who don’t mind more involvement in their real estate properties and don’t mind more direct contact with tenants, residential is often the route they choose. Keep in mind, these properties come with a higher degree of risk but can also produce fast, high-yield returns on capital in some instances.
Investors who’d prefer less risk, more stability, and less involvement in their real estate investments’ daily operations may find that commercial real estate funds are a more attractive alternative to residential properties for their goals.
Investing in real estate doesn’t have to be limited to your local real estate market. Fortunately, you can take advantage of opportunities across the country through real estate investment funds.
Maximizing your ROI means locating properties with some key desirable traits:
Thankfully, you don’t have to become a landlord yourself to experience the benefits of real estate. Some investors opt for investing in a REIT, while many others have found the value of investing in a real estate fund like those offered by Saint Investment Group.
While REITs have been around for some time now, they don’t usually provide as much insight into the underlying properties being invested in by the trust. Alternatively, real estate funds run by seasoned experts deliver detailed reporting on a regular basis, along with far more insight into the assets that the fund selects.
For those wanting the most stable, secure returns that real estate can provide, investing in a fund can provide more peace of mind by meeting expectations more reliably. Invest online with Saint Investment Group when you would prefer avoiding the headaches of being a landlord. When solid returns, passive income, and an expert asset management team is essential, give us a call.
When your mission is portfolio diversification, it can be hard figuring out which real estate investment is right. Saint Investment Group takes the guesswork out of the equation, providing expert insight into the best real estate for your investment objectives. Call (323) 483-0291 today and talk with a seasoned real estate investing professional to learn what options are available to you.
A master in Investment, Marketing, and Capital Raising.
Nic has honed his focus on the Real Estate and debt markets with Saint Investment Group and pursues large-scale Distressed Asset purchases with his partners and syndications.