Investing: Residential vs. Commercial Real Estate

It may seem to be a logical investment to start out with a residential real estate purchase, however, in the long run, investing in commercial real estate will help to balance out your asset portfolio. Before you jump in, there are vital differences to be aware of between the residential and commercial real estate market.

Property Value

Commercial real estate produces a significantly relative income to that of its usable square footage. In terms of residential properties, that is not always the case. Residential property or “non-owner occupied” may also carry a higher interest rate than that of “owner occupied” property.

Commercial Property Aids in Modifying Risk

With the purchase of commercial property, often come tenants whom fill the space. Losing a tenant in a single-family home is a far more significant loss than one of 15 tenants that you may manage in an apartment style setting. With the loss of only one tenant in a commercial setting, your income is still considerably larger than that of a residential home.

Superior Cash Flow

Commercial real estate often generates a higher cash flow per square foot than residential as well as on an initial investment basis. By purchasing or leasing a multi-unit commercial property, the opportunity is available to fill those vacant spaces and generate greater income. Eventually, this will also help to stable out cash flow by creating a consistent system of tenant payment.

Bank Value

Unlike residential properties, banks will usually look for a down payment of 30% or more from the buyer of a commercial property. The upside, most major leading banks worth with commercial real estate properties, so there is no need to go on an excessive search to find one that will take care of your needs.