JLM Blog | Commercial Real Estate Vs. Residential Real EstateReal Estate News, Updates, and Tips
Real Estate Agency San Diego, CA
Article published on February 25, 2022.
Historically, investing in real estate can make your portfolio less susceptible to market volatility as compared with stocks and can add diversity so you could spread out the risk you’re taking on.
If you’re starting to dip your toes into real estate investments for the first time, our experts from the Real Estate Agency San Diego will break down the primary differences between commercial and residential investments, along with their pros and cons to help you figure out which makes more sense for your portfolio.
What Are Commercial Properties?
A variety of property types fall under the category of commercial real estate, such as industrial buildings, office buildings, warehouses, retail space, and so on. All of which offers a steady cash flow and a great return on investment coming from the tenants’ rental payments. Owners of commercial properties are usually LLCs and keep interactions professional by operating the property in a business-to-business customer relationship.
What Are Residential Properties?
On the other hand, residential property is one of the two general classes of real estate. Investing in residential properties like houses, townhouses, or studio apartments requires a different approach. Here, the residential landlord plays a key role in the tenant’s personal life as compared to the one that exists between commercial property landlords and tenants.
Commercial Real Estate: Pros & Cons
For commercial properties, owners are positioned for high and long-term earning potential. Tenants of this type of investment usually sign multi-year contracts, which ensures a steady flow of income from the property. Commercial investors can end up with big companies who are willing to sign triple-net leases to stay consistent and feel in line with their branding. This is extremely desirable for property owners since the lessee handles all property expenses directly.
While there are many positive reasons to invest in commercial real estate, it’s also important to consider the negative issues in order to make sound investment decisions. Properties intended for commercial use are often more difficult to put up since they require more capital upfront–making this investment type less appealing to risk-averse investors. Furthermore, managing this type of investment may also require you to pay for ongoing maintenance along with a professional property manager who will oversee matters on a day-to-day basis.
Residential Real Estate: Pros & Cons
Entering the residential real estate market is typically easier as it’s possible to secure a short-term loan with a low initial investment and the regulations for small-scale properties are more lenient. Aside from its sizable downpayment and ease of entry, owners can also benefit from the large pool of potential tenants in online marketplaces and remote work opportunities. What’s more, you don’t have to worry about the ongoing maintenance and repair costs if you decide to go the fix-and-flip route.
Just like any type of investment, residential real estate also comes with some potential drawbacks. For residential real estate investors, Owning a residential property may require you to shell out money to repair damages made by an unhappy tenant who leaves the property in a poor condition. Since you’re the first line of repair, fixing a leak, shoveling snow, trimming the bushes, mowing the lawn, etc. are all part of your responsibilities especially if you want to save money by doing all the repairs and maintenance by yourself. You may also face a series of delinquent tenants, which can take a significant hit on your cash flow.
From equity to a more diversified portfolio, investing in real estate can offer countless perks. Choosing among these two types of investment ultimately depends on your capital, risk tolerance, and the effort you’re willing to exert to your real estate investment. The bottom line is, any type of property can be a good investment opportunity and offers great financial rewards when you understand the full pros and cons.
If you’re interested in entering the real estate market, whether that’s through residential or commercial, it can be a good idea to find a qualified partner to help you achieve your financial goals. At JLM Real Estate Agency San Diego, our professional team offers industry-leading knowledge and expertise to help you find the best prices in the market.
As always, our agents are readily available to address your needs. So contact us today and let us walk you through the process of obtaining your new commercial or residential property.
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