Interested in diving into the real estate investment world? It’s not a decision to take lightly, and when deciding between commercial vs. residential real estate, more thought should be devoted to making sure the decision works for you in the long run. Investing in any asset is not a decision that can be made overnight. Each strategy offers its own set of benefits as well as its own set of challenges. An investor’s path will depend on their goals, risk tolerance, liquid capital, and time.
Table of Contents
The technical difference between a residential and commercial property used to be blurred, but there are now more definite guidelines for each.
Residential Real Estate is all single-family homes and one to four-unit rental residences.
In contrast, commercial property is anything with five or more units. Condos, duplexes, and quadruplexes makeup residential real estate. Condos count because each unit is considered one entity, despite being part of a larger building.
Office, retail, industrial, multifamily, hotel, and special purpose buildings are considered commercial real estate.
Another important difference between commercial and residential buildings is in the type of tenant each building attracts. Residential properties are typically leased to families and individuals, while commercial properties are leased to businesses.
Lastly, each property type comes with a different set of opportunities. Commercial real estate tends to award investors a much wider range of potential investments.
For example, there are more commercial property investment funds than residential ones. On the other hand, residential real estate investing tends to give investors a more active role in the property.
No matter the investment it’s important to consider the pros and cons before making a final decision. The benefits of commercial real estate investing far outweigh many of the cons of this type of investing.
Both commercial and residential real estate investing have positives and negatives. To decide which strategy is right for you, it’s important to review the benefits and determine which ones align more with you and your business’s core values.
Deciding which type of real estate investment is better for you, commercial or residential, requires careful consideration of your goals, risk tolerance, and investment strategy.
Commercial real estate offers higher potential returns on investment but requires a significant upfront investment, a longer-term investment horizon, and a willingness to take on higher risk. On the other hand, residential real estate offers a lower entry barrier, a stable rental income stream, and a broader pool of potential tenants but may have lower appreciation rates and higher tenant turnover rates.
Ultimately, the best type of real estate investment for you depends on your investment goals, risk tolerance, and financial situation. If you have a higher risk tolerance and a long-term investment horizon, commercial real estate may be a better choice. If you are looking for a stable rental income stream with a lower upfront investment, residential real estate may be a better fit. Consider working with a financial advisor or real estate professional to help you make an informed decision based on your specific circumstances.
Choosing between a commercial vs. residential investment property is no easy decision, especially when you consider both of their sets of benefits and drawbacks. Both will diversify your portfolio, both come with significant tax benefits, and both will bring you one step closer to achieving your financial freedom.
But real estate isn’t the only option, and for those looking to diversify their portfolios, income funds might be a great option to consider.
No matter your financial goals, Saint Investments is here to help. Our financial services specialists leverage years of experience to provide the best advice, no matter your financial goals.
Commercial real estate includes office structures, retail spaces, warehouses, and industrial properties, among others.
Residential real estate refers to properties designed and used for accommodation, such as single-family homes, townhomes, condominiums, and apartment structures.
In terms of purpose, features, and financial potential, commercial and domestic real estate are two entirely different beasts. Business real estate is built with the ultimate goal of making money for a company, either through renting out space or selling the property at a profit. Domestic real estate is built specifically for the purpose of sheltering its occupants.
The longer-term rental revenue sources and greater investment possibilities of business properties make them generally more expensive than comparable domestic properties.
Generally, when considering the two types of real estate investments, residential real estate is a better choice for people who are new to investing due to its lower upfront investment requirements, easier access to financing, and lower risk. However, making a decision between the two types requires sufficient knowledge of the market, the ability to answer important investment questions, and an understanding of the key factors to consider such as the intended purposes of the investment, the level of risk tolerance, and the potential returns on investment. For experienced investors with a higher risk tolerance, commercial real estate can offer higher returns on investment.
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.