Is it Better to Invest in Commercial or Residential Property?

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Commercial or Residential real estate? Which one is better? Today, you'll find out in this article.

residential vs commercial real estate

Making the decision to invest in real estate is one first step to setting up your wealth and financial security. And one of the biggest decisions will be what to invest in. The two main areas of property real estate investing are commercial and residential. Both are similar in ways, yet vastly different. So how do you choose between them? What is better, commercial, or residential property? Before you make the decision between commercial or residential, you will need to understand the difference. Both may involve the purchase of a physical property, but they are quite different in management style, sources of income and initial cost.

What is commercial property?

Commercial property is described by Investopedia as being any real estate that is used for business activities. More different types of properties fall under the commercial umbrella. So your options are wider. The main types of commercial properties include:

The key point that makes a property a commercial property is that it is used for business purposes. The exception being multi-family housing and storage units. The reason multi-family units are considered commercial is due to the size and scope. It goes beyond single residential. If you are not sure whether a property that you are looking at is commercial or not, just think about the type of tenant you would expect to have, and what they would use the space for. If it is going to be used even partly for business or retail, then it is likely commercial. And if nobody is using the space for their place of residence (such as a storage unit), then it cannot be considered residential.

What is mean for a property to be residential?

So now that we understand that commercial real estate is any property that is used for business purposes, on the other end is residential, which is designed for living in. Residential property is much easier to understand. It is any property that is used as someone’s normal place of residence. Main examples include:

It does not matter who is living in these properties, whether it be an individual person, a couple, or a large family. If it is considered their home, then it is residential. Holiday homes and vacation rentals are also considered residential as it will generally only hold one family at a time.

What does it mean to invest in commercial or residential property?

Investing in real estate is a good way to build wealth. But what does it mean to invest in commercial or residential property? To become an investor, you would need to purchase a property, and rent it out in order to make an income from it. The main difference between commercial and residential investments will be the types of tenants as explained by Real Estate University. Commercial properties will generally be rented or leased to businesses. Or individuals operating a business. Alternatively, for storage of someone’s personal belongings. But you would not have anyone living in such property. Residential property on the other hand will involve a more detailed lease as it will be considered someone’s home. An individual or a family will be living in the property, and pay you rent. No matter whether you choose commercial or residential, you will earn an income from renting out the space. The main difference is who you rent it out to, and how much you will be able to rent it out for. Commercial real estate can be more expensive to purchase, however can bring about higher returns.

What are the main benefits from commercial and residential properties?

As discussed, the general process behind commercial and residential estate investing is similar, yet there are clear benefits to both. And whether one is better for you depends on your personal circumstance, your financial position, and your tolerance to risk. Source: Fortune Builders.

Benefits of commercial real estate

Benefits of residential real estate

Conclusion

There are clear differences and benefits for both commercial and residential properties, and either type can be a good long-term investment. There is no clear answer as to what is better between the two, rather you need to consider what is best for you and your situation.

 

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About the AuthorCharles at infoSpike

Charles is the founder of infoSpike.com. His real estate investing experience started in 2004 and he is currently focused on rental property projects. He enjoys learning about real estate investing, personal finance, and marketing. Read more about Charles here.