Commercial vs. Residential Real Estate: Which Type of Investment is Right for You?

Posted by Kris Lindahl on Thursday, November 2nd, 2017 at 10:34am.

Why You Should Invest in Commercial Real EstateAnyone who is looking into real estate investment is serious about making a profit, but too many people mistakenly assume that residential real estate is best way to begin their journey. Before you make your first offer on an investment property, be sure to understand the differences between residential and commercial real estate investment. This will help you make a choice that is right for your professional goals and personal aspirations.

Residential Real Estate Investments

Those who invest in residential real estate often focus on purchasing single-family homes that they intend to flip for a quick sale or rent to tenants to earn continual income. Residential real estate can be an affordable way to begin investing in the market, because prospective investors can focus on one property at a time.

Commercial Real Estate Investments

Those who invest in commercial real estate purchase various commercial properties, including office buildings, retail space, multifamily units and more. Commercial real estate requires a more significant financial investment, but it also offers higher returns. In addition, commercial real estate investments are known for their stability, and for the fact that these investments still produce continuous returns regardless of the current economic climate.

Why Should You Focus on Commercial Real Estate?

  • Commercial real estate generates higher investment returns than most residential properties. Ultimately, the purpose of any investment is to earn a profit on it. While single-family homes can generate nominal returns over a long period of time, commercial real estate generally offers quick, valuable returns. In particular, the current real estate market has become increasingly competitive for buyers, forcing many to stay in apartments and other multifamily housing units. This is providing commercial real estate investors with even higher returns than normal, since multifamily housing is in high demand.
  • Commercial real estate provides investors with consistent cash flow. Whether an investor opts to purchase retail buildings and office space or multifamily housing units, there are generally tenants occupying the spaces and paying rent. This provides the investor with the cash flow necessary to continue pursuing additional investments. In addition, the reliability of this cash flow provides investors with more financing options, as lenders are more apt to offer a loan to a commercial real estate investor who can prove they will have consistent cash flow.
  • Commercial real estate is a valuable addition to an investment portfolio. Investors who primarily deal in other sectors may find that commercial real estate is a great way to diversify their portfolio. Commercial real estate is considered to be a tangible asset, which can improve the strength of a portfolio and allow an investor to consider pursuing larger, more lucrative investments.

Tips for Succeeding in Commercial Real Estate

  • Research your local market and understand the types of commercial properties that are in high demand amongst renters and tenants. One of the best ways to begin understanding the local market in your area is to start farming the region. Farming is a real estate term that means to study a specific area and make it your niche market. You can start the process of farming by visiting real estate open houses and talking with clients as well as local agents. You also can conduct research into available properties and vacant land that may make for a good commercial real estate investment or development. Contact a real estate agent to see if they can provide you with more insight into commercial real estate opportunities.
  • Partner with a real estate agent who specializes in commercial properties. A qualified real estate agent can provide you with the accurate data that you need to make the best decision for your investment in commercial real estate. Beyond the information and resources that your real estate agent can provide you with, they also can help you connect with other industry professionals who can help you along the way.
  • Network within the commercial real estate industry. Your real estate agent can help you get started by providing you with recommendations for lenders, contractors, commercial business owners and potential buyers. Use this valuable information to start building your own network, because a well-connected investor has a better chance of scoring the best available properties in the region.
  • Stay open-minded and flexible at all times. As you pursue commercial real estate investments, it helps to have a specific goal in mind as well as a plan that will help you achieve that goal. Remember, though, that those who are successful in commercial real estate are flexible enough to make quick decisions that will benefit their investment, even if everything does not appear to be going to plan.

To learn more about commercial real estate opportunities in your local market and to find out how to get a great deal on a commercial property, contact an experienced commercial real estate agent today.

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