If you are looking to invest your money, you have no doubt been told about the benefits of real estate investing. But you may be shocked to learn that there are so many different avenues within real estate to go.
For instance, should you invest in residential real estate or commercial real estate? Here are the important differences between the two and how it can impact your decision.
Commercial Real Estate
For starters, the potential for returns are much higher in commercial real estate. On average, commercial real estate investments average almost 4% higher annually on their returns than residential real estate. More space means more tenants, which means more money.
Having commercial real estate also means getting better qualified tenants. In residential properties, you are dealing with people. In commercial real estate, you are dealing with businesses. One tends to be more reliable as a tenant than the other.
There is also the matter of longer lease terms. Commercial leases tend to be quite a bit longer than the standard 6- to 12-month leases in the residential arena. Longer leases mean greater security when it comes to rental income.
Residential Real Estate
The biggest upside to residential real estate investments are that they have a much lower cost of entry. Getting a commercial real estate loan is tough, even with the right credentials. The average person stands a better chance of getting approved for a residential real estate property than they do a commercial investment.
Zoning laws also tend to be far more lenient for residential purposes. There is red tape involved in commercial investments as far as proper zoning. The zoning laws are more strict in commercial investing, permits are harder to come by, and so on. That is not the case for residential investing.
Furthermore, there is far more available to residential investors. That means a larger pool of properties to choose from and a larger pool of renters, too. There is typically no shortage of potential tenants out there for residential properties.