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  • Writer's pictureTaleen Krug

Exploring the Biggest Difference Between Residential Property and Commercial Property


As an individual investor before making an informed decision about whether you want to invest in commercial real estate or residential real estate know the difference between these property types.

Residential real estate is used for residential purposes usually and includes condos, mobile homes, duplexes, and quadruplexes, while commercial real estate includes various types of buildings and industrial properties with office space used for business purposes. These properties are typically rented out by business owners who need certain square footage, long-term leases,

Businesses are often attracted to commercial properties, while families and individuals tend to rent residential real estate property.


Various types of properties provide different opportunities for example, commercial real estate and/or commercial space typically provide investors with a broader selection of investments including a greater number of commercial property investment funds compared to residential ones. Some properties might include industrial space, vacant land, manufacturing facilities, mixed-use property, heavy manufacturing space, industrial buildings, office buildings, as well as multiplex buildings.

Conversely, residential real estate investing typically necessitates investors taking a more hands-on approach to property management like single apartment units, multifamily properties, rental property, residential leases, apartment buildings, residential homes, residential rentals, expensive homes, and the like.


Investing in Commercial Real Estate Opens a World of Possibilities

Experienced investors understand and have the proper knowledge as well as specialized knowledge when thoroughly evaluating the advantages and disadvantages before making an investment decision. The advantages of investing in commercial real estate are widely recognized.



So, get ready to cash in big with commercial properties as they offer higher returns that will make your jaw drop. Compared to the measly returns on residential properties, commercial real estate is where the real money is at. According to the National Council of Real Estate Investment Fiduciaries (NCREIF), Property Index, you can expect an average return on investment of a whopping 12.7 percent! That's way higher than the average annual return of 8.8 percent on the S&P 500. Don't miss out on this golden opportunity to make some serious cash. This option is a golden opportunity for investors looking to add a thrilling twist to their portfolio diversification journey.


Investors often face challenges when searching for qualified tenants or potential tenants for single-family or small multi-unit properties or other residential units. On the other hand, commercial tenants and commercial property owners typically consist of businesses or corporations, which are more likely to follow property regulations because of the support of larger companies. While this isn't always the case, having reliable tenants who pay monthly rent on time, can simplify a property owner's life.

Triple net leases are a beneficial option for commercial real estate investors, and the average investor as they relieve the property owner from paying any property expenses. The lessee assumes responsibility for all property expenses, including real estate taxes, while the property owner remains responsible for the mortgage. Major players in the business game (think Starbucks, Target, Walmart, etc.) will usually ink this type of lease to ensure their image and vibe stays true to their brand. Not only do they handle all those pesky costs, but the investor gets to enjoy practically zero maintenance expenses.


Investors have a plethora of net real estate leases at their disposal, but the crème de la crème is the triple net lease that works wonders for commercial properties.


Commercial leases, known for their long-term commitment, typically span a captivating duration of 5-10 years. Unlock a world of endless possibilities by opting for longer lease terms, granting you access to an array of advantageous options. This has the potential to slash expenses and skyrocket occupancy rates so seize this once-in-a-lifetime chance. The lease terms provide a steady income for property owners who want easy promotion.


One notable distinction between residential and commercial real estate is the evaluation of property values. Residential properties are influenced by comparable properties, whereas commercial properties are impacted by their income. The cash flow of a commercial property holds the key to its value, and with the right tenants, investors can experience a skyrocketing increase in worth compared to residential housing.


Unlock the Hidden Treasures of Residential Real Estate Investing

Real estate investing, whether commercial or residential, comes with its own set of pros and cons. To find the perfect strategy for you, take a deep dive into the advantages and determine which ones resonate with your core values.





Residential real estate and residential investing are usually cheaper to buy than commercial real estate, especially for new investors. Many people can afford a down payment on a house, but not on a commercial property. However, once they have multiple residential properties that generate income, they can invest in a commercial buildings, commercial units, or other commercial investment properties.


Tenant turnover is less common for residential real estate investors, particularly those who focus on single-family homes. Commercial properties tend to have more turnover due to businesses changing and growing. Due to the high level of volatility, it can be challenging to maintain long-term tenants. This requires increased effort in finding tenants regularly rather than sporadically. By effectively marketing and screening tenants, residential real estate investors can attract individuals who are interested in long-term renting. By prioritizing long-term tenants as well as quality tenants there is a higher likelihood that they will treat the home with care and consideration.


Navigating through a maze of zoning regulations, zoning ordinances and battling the bureaucratic beast of building permits is a common challenge in the world of commercial investing. However, if you prefer a more flexible and laid-back experience, the residential real estate realm is your playground, where rules and regulations are as flexible as a yoga instructor and cater to smaller-scale projects.


In general, the demand for residential real estate is high due to the basic need for shelter. With the shift toward online operations and an increase in remote work, attracting commercial tenants may pose a challenge. However, the strong demand for residential real estate presents a favorable opportunity for investors across all markets.


In an economic downturn, businesses can struggle financially, affecting commercial investors in different ways. During a declining economy, property owners may struggle to attract tenants. Despite challenges, residential real estate remains a profitable investment due to constant housing demand. Companies may not always stay in business for the entire lease, which can be a challenge for investors.


Commercial vs. Residential Building Costs

Commercial and residential properties may look similar in terms of size, but when it comes to cost, they are worlds apart. From the materials used to the compliance standards, overhead, labor, and equipment, every factor plays a role in shaping the price tag.


Commercial properties can be a real money pit with a whole army of workers, specialized equipment, and a never-ending list of people to pay, the costs can skyrocket fast. From the project manager to the general contractor to every subcontractor in between, it's like a never-ending game of passing the cash. Managing the intricate puzzle pieces of a commercial project can be a daunting task, as the myriad of moving parts often pose a scheduling challenge. And when it comes to rescheduling, be prepared for the inevitable price tag that accompanies it.


Commercial projects are usually completed faster than residential projects because homeowners often make changes during construction, causing delays. However, making changes in commercial projects is more challenging and costly, so there are fewer alterations. Housing is expensive due to expenses, labor, and investments. Residential properties are calm and commercial properties are expensive.


Commercial Vs. Residential Real Estate Agents

Seasoned investors, as well as commercial and residential real estate agents, may seem similar, but understanding the key differences is crucial in choosing.



Whether you're interested in commercial or residential properties, one thing is for sure - education and training are a must. Typically those in the commercial real estate market have a college degree in business or finance and have mastered the art of deal-making.


Residential and commercial real estate agents handle different types of properties. Residential agents handle residential properties, while commercial agents deal with properties used for different purposes. That said, commercial property agents need to know the proper procedures and legalities for both types of transactions.


Commercial property can be the golden ticket to bigger bucks with higher earning potential than residential real estate, commercial agents are raking in the dough.


While residential properties may sell quicker, it's the commercial market that brings in those fat commissions.


Residential properties are a good opportunity for sellers, thanks to economic factors that can sway the commercial real estate market in unpredictable ways. While residential real estate agents have a breeze finding tenants for their properties, commercial real estate clients are few and far between.

Residential agents have different work schedules and responsibilities and they are required to be available for work outside of regular business hours, including evenings and weekends. While commercial real estate agents stick to a traditional 9 to 5 grind, their counterparts in the commercial sector juggle a demanding workload that involves delving deep into the market and economic trends, guaranteeing success in their intricate deals.


Discover the Ultimate Showdown: Commercial vs. Residential Real Estate

Deciding between a commercial and a non-commercial option isn't always easy. Investing in residential property can be a complex decision, as both options have their advantages and disadvantages. Both offer portfolio diversification, tax benefits and can contribute to financial freedom. Therefore, investors may find it challenging to make a choice.


The answer to the question varies depending on investment goals in real estate. Investors need to consider their short and long-term goals. If someone is seeking to make a quick profit, rehabilitating or wholesaling a residential property may be a suitable option. Conversely, if they have long-term goals and aim to generate passive income, commercial properties provide appealing advantages.


Summary

When weighing the pros and cons of commercial versus non-commercial options, a myriad of crucial factors come into play, demanding careful consideration. Investors are flocking to residential properties, fueling a skyrocketing surge in investments. Unlock the potential of your investments by exploring the exciting world of commercial real estate or, if you prefer a more intimate approach, residential properties might be your perfect match.


Dive into the thrilling world of investments by carefully weighing factors like time commitment and risk tolerance, and aligning your goals. Let your inner investor soar and make those savvy decisions today as the possibilities are endless when it comes to choosing a new path for the future.


Are you prepared to begin capitalizing on the current opportunities in the real estate market?


If you're looking to invest in commercial or residential property in Long Island or New York in general, be sure to hire professional Realtors like Taleene and Ritchie Krug Jr. who can find you exactly what you're looking for in terms of the best home, commercial property, or residential property like a house, condo, or townhome. Lifelong residents of Long Island, are part of a team with more than 40 years of combined real estate experience. They have a deep understanding of how real estate has evolved through the years which results in a team with unique dynamics and expert negotiating skills being put to work on your behalf. With 20 offices spanning Brooklyn Queens & Long Island, nobody is better equipped to handle your real estate needs.

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