REAL ESTATE INVESTING

Investing in Commercial vs Residential Real Estate: Which One is Right for You?

There's a lot of debate on which type of real estate investment is the best for investors - commercial or residential.

We will be discussing the basics and pros and cons of each type of real estate investment so you can better distinguish which type of real estate investment might be best for you.

What is Commercial Real Estate Investing?

Commercial real estate is used exclusively for business-related purposes, or to provide a workplace, rather than living like residential. Some of the most common commercial real estate properties include office buildings, retail stores, multifamily properties, and industrial properties. These types of buildings can range from large multi-tenant shopping centers to single-tenant storefronts. The standard form of commercial real estate investing is where properties are purchased and then leased to tenants to conduct income-generating activities. Commercial lease rates (price to occupy a space) are typically quoted in annual rental dollars per square-foot. These leases will run from one to 10 years or more, with office and retail space typically averaging five-to-10-year leases. Investing in commercial real estate can be potentially lucrative and serve as a hedge against the volatility of the stock market and other traditional investments. Investors can make money through property appreciation when they sell, but most returns come from tenant rents.

Commercial Real Estate Pros & Cons

When it comes to investing, commercial real estate has many advantages including:

Greater lease rate, which yields a high source of income
Hedge against the stock market
Longer lease terms will secure a tenant for long-term investment with stability
It’s easier to increase the value of a commercial property
Lower vacancy rates
Lower turnover costs
Capital appreciation potential

The downsides to commercial properties include:

Rules and city regulations can limit what will operate at the property
More capital required to directly invest
Higher renovation costs
Lengthy contracts that can be complicated to analyze

Commercial real estate can be a great investment because it’s typically stable and offers long-term returns. So, if you’re thinking of investing in commercial real estate, be sure to consider the pros and cons and find a commercial agent that can help you.

What is Residential Real Estate Investing?

The standard form of residential real estate investing is buying, and leasing properties used for residential purposes, such as homes and Airbnb vacation rentals. This investment is best at attracting consumers looking to lease a home rather than buy or live in an apartment. Residential real estate lease rates typically are quoted as an annual sum or a monthly rent and can have a lease term from month-to-month to a year. Residential real estate may have a lower annual return than commercial real estate, but it’s also cheaper to buy at the outset.

Residential Real Estate Pros & Cons

When it comes to investing, residential real estate has many advantages including:

More affordable to buy residential properties
No rules or regulations on who can occupy the space
Perform more consistently in an economic downturn
Lower barriers to entry with minimal experience needed
Large buyer pool
Rental rates grew on average 15 percent year over year since 2021

The downsides to residential properties include:

Shorter lease terms that don’t provide stability
Higher vacancy rates
Lower lease rate than commercial real estate

Residential real estate can be a great investment to investors just starting out and wanting to build a portfolio, or for seasoned investors looking to enrich their portfolio with more low-risk investment. So, if you are thinking on investing in residential real estate, be sure to consider the pros and cons and find a residential agent that can help you today!

Which Investment is Right for You?

There’s no single answer to this question – it depends on your goals, your financial situation, and many other factors. Ultimately, the best investment for you will depend on your specific situation. If you’re looking for a short-term return, residential real estate may be the better option for you. Commercial real estate offers many advantages, such as more stability and greater potential for ROI (return on investment). It ultimately comes down to what’s right for you – so don’t hesitate to speak with an experienced real estate agent about your specific situation. Before deciding, it’s important to weigh these pros and cons. So, before you make your investment, do your research and talk to an expert.

Contact an Agent Today!

M&D Real Estate is a full-service firm based out of Rockwall, Texas offering Residential, Commercial, and Property Management services throughout the Dallas-Fort Worth Metroplex.

Our residential and commercial real estate agents are top quality, our marketing is cutting-edge, and we make every process as hassle-free and enjoyable as possible for our clients. This is why we are one of the fastest growing firms in the state.

Contact one of our agents today for all your real estate needs!