When a person decides to invest in real estate, they need to determine if they are going to choose the commercial or residential space. There are some differences that an individual needs to understand before making a decision. Here are five key factors that make residential and commercial property investing differently:
Commercial Real Estate (CRE) Requires More Data
With residential real estate (RRE), if a person is selling a house, the party who is buying the property doesn’t have any interest in knowing the income stream of the property or its growth.
A CRE investment is the exact opposite. When it’s time to sell, the seller will need to have a diligent record of the income and expenses, which will show the performance of returns on the property.
CRE Makes It Easier To Evict
When a person gets involved with RRE, it involves tenant rights. With these rights tied to the property, it can be difficult to get rid of non paying tenants who decide to abuse the system. Unfortunately, some individuals have figured out how to become squatters and stay on a property without paying.
This will not occur with CRE. If a tenant doesn’t pay, they can easily be evicted.
CRE has four major groups. They include hospitality, retail, office and industrial. Inside these groups, there are some highly specialized investors involved in selling and buying these properties on a regular basis. Many of these properties will not be listed as they trade through private negotiations.
This means that an investor will have to slowly break into that marketplace and understand the players if they want to participate.
CRE Involves Networking
The agents who are involved in CRE and RRE have very different ways that they work. By far, the most significant difference is that CRE agents are required to network. An investor will need to know the right people who are involved in CRE if they want to find a good deal.
This makes it difficult for an agent who specializes in RRE if they are trying to help an investor break into the CRE space.
Financing And Income
Typically, CRE will come with more extended lease agreements. This creates the opportunity for higher rental income. However, RRE comes with fewer complications.
Commercial properties can be expensive to finance and usually require a more substantial amount of capital. This differs from residential property financing. It’s much easier.
With just these five differences, an investor can see that CRE involves more record-keeping and the ability to create connections when compared to investing in RRE. However, this extra work and networking can generate a higher income.