Choosing Commercial vs Residential Real Estate Investment
Wednesday, March 29, 2017
While some may think that in the world of investment real estate is just real estate there are some very significant issues to consider before deciding whether to invest in commercial or residential properties.
Commercial real estate can include residential properties of 5 or more units but the most common commercial properties are land, office and retail space and industrial use buildings. Commercial properties typically attract investors with a large supply of capital and years of business experience and/or education.
Investment in commercial real estate typically entails the purchase of revenue-generating properties with the intent to hold onto those properties and generate income from long-term leases. While it sounds like a simple undertaking up front, and it is one that can generate significant revenue or sale profits if purchased, managed and/or sold shrewdly, it will almost always involve significant costs up front. For most, that means partnering with other investors or lenders in commercial real estate investing, especially as banks can be very wary of extending loans on commercial property. When navigating partnerships and dealing with investment firms or banks a good Commercial Real Estate attorney will be one of your chief assets.
On the other end of the spectrum is residential real estate which includes single family homes as well as one-to-four-family rental residences. Condominiums and cooperative units fall under the residential real estate umbrella, as well. Primarily investors in residential properties are those who either wish to become landlords in the long term or “house flippers”, buyers who purchase properties at very low prices to renovate and resell quickly at a higher price.
One of the greatest attractions of residential investment is that startup costs tend to be relatively low making it easier for almost anyone to go into residential real estate investing. If you know what you are doing regarding structural and cosmetic renovation, you have at least some capital up front and are disciplined enough to stick to a budget and timeline then flipping a property can be very profitable. However, there is always the danger of busting the budget or the timeline due to unforeseen issues.
Other investors prefer a long-term plan and becoming a landlord is a better fit as it is easy in most markets to find paying tenants. It is important to keep in mind that as a landlord you will have to deal with property management responsibilities, tenants who don’t pay or don’t abide by the rules of the lease and other issues, as well.
Before deciding to invest in either commercial or residential real estate it is always an excellent idea to sit down with an attorney to discuss options, possible pitfalls as well as profits and come to an informed decision. That’s where we come in. Contact us when you are ready to jump into the investment pool and let us show you how best to protect yourself and your investment from the start.
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