Investing in real estate is a great way to build equity and make an extra income. Real estate investments are often lucrative and less susceptible to market swings. Before you decide to start a career in real estate investment, it’s important to understand the differences between commercial and residential real estate.
Commercial Real Estate
Office buildings, warehouses and land all fall under the commercial real estate umbrella. Commercial real estate is designed for generating money. Commercial real estate offers more earning potential than residential. If the demand for the property is high and operating costs are low, you stand to make a steady profit.
Commercial real estate comes with downfalls as well. More often than not, it’s not a property that can be managed on your own. You’ll have to hire a property manager to deal with matters relating to tenants and day-to-day operations. Investing in commercial real estate requires a more substantial upfront payment and may have expensive upkeep.
Residential Real Estate
Residential real estate investment is often less stressful than its commercial counterpart. If your property is a single-family home, you’ll only be dealing with one tenant. If you’re investing in residential real estate to flip properties, you won’t have to deal with tenants at all. Residential properties are often able to be managed by one person, instead of needing a team to assist with tasks.
Residential real estate is usually easier to start investing in, compared to commercial real estate. Less money is needed for acquiring a piece of residential property, and regarding house flipping, you can obtain a hard money loan and pay little upfront.
Residential real estate can be riskier than commercial real estate. With only have one tenant, you’ll be out an income if they decide to move out unexpectedly. Residential real estate also doesn’t offer the same level of returns as commercial real estate does. Depending on the location, property taxes may take a large part of your profit.
There is no clear answer to which type of investment is best. It depends on your reasons for investing. If money is the most important factor, commercial real estate may be your best option. If you’re looking for something smaller and more manageable, residential may be a good fit.
This article was originally published on Medium.com.