Will you invest in Residential or Commercial Real Estate?
Real Estate is divided into two branches; residential and commercial real estate.
They are like two sides of a coin. Thus, investing in one side of real estate is complementary to investing in the other side. The reason is that people cannot work in an office without living in a house. Making up one’s mind on what branch of real estate to invest in is hard work.
Real estate development, or the process of land development to construct commercial and residential buildings, shapes tomorrow’s urban scene. This is because real estate development governs future land use and the associated spatial distribution of jobs and houses. As such, it provides public planners with an instrument to steer urbanization.
Residential Real Estate
Residential real estate involves buying, rehabilitating, and selling homes. The real estate market is composed of buyers and sellers, but there are many reasons people buy and sell real estate.
Some people do it as an investment pursuit. Active investing in real estate, however, can be done in several different ways, though most investing involves either residential or commercial real estate. Additionally, differences exist between commercial and residential real estate investing and each comes with its advantages and disadvantages.
Benefits of investing in the Residential Estate
Relatively low start-up costs make it easy for almost anyone to go into residential real estate investing. If you’re investing in residential real estate to flip it, you make your income on the profit margin between your purchase price and your sale price.
However, many people buy residential real estate and become landlords because it’s relatively easy to find paying tenants.
On the downside, residential real estate investing may mean you’ll be experiencing landlord property management responsibilities, deadbeat tenants, and other issues.
All single-family type homes and one-to-four-family rental residences are considered residential real estate. Condominiums and cooperative units are also included in the residential real estate category for investment purposes.
One of the benefits of investing in real estate is a hedge against inflation. With high inflation, your rental income and property value increase significantly. Real estate investors welcome inflation with open arms because as the cost of living goes up, so does their cash flow.
If you already are in real estate investment or are just starting out, you do understand that real estate is not a short-term investment plan. On the contrary, the benefits of investing in real estate include the appreciation of capital assets (aka land) over time. In other words, your property’s value will be worth way more than 30 years from now, hence why investors are in it for the long run.
See also: Property for sale in Lekki
Commercial Real Estate
Commercial real estate is generally land or buildings intended to generate a profit. Commercial real estate is frequently referred to as investment or income property.
Commercial real estate also includes rental residences or properties housing five or more units. However, most commercial real estate is an office and retail space and industrial-type buildings.
Commercial real estate investing tends to draw in people with much money and business experience or education.
Benefits of Investing in Commercial Estate
In commercial real estate, you generally buy likely revenue-generating properties and make money off tenants’ long-term leases.
Commercial real estate investing, though, typically involves much higher start-up costs than residential real estate investing because commercial properties are pricier.
Read also: Why buying a home is a good investment
Also, you usually need deep-pocketed investor-backers or lenders in commercial real estate investing. Banks can be difficult when giving commercial property loans.
However, commercial properties, if bought and managed or sold smartly, can generate significant revenue or sale profits.
It’s apparent that with an enhanced position in the market, commercial estates with more space and more tenants to occupy their assorted segments, accomplish loftier returns. The steady cash flow makes it an exemplary undertaking with periodic revenue that outweighs the expenditure paid to occupy the area.
One major importance of investing in commercial real estate over the residential estate is MAINTENANCE – unlike residential investors, commercial investors have the potential to earn an enhanced profit, with the lessee responsible for paying the cost of maintenance, rates, and repairs on the property when the ongoing expenses are written into the commercial lease agreement.
Depth of Involvement
Your required depth of involvement in real estate investing depends on whether you intend to flip the property or become a long-term investor or landlord.
Many house flippers are buying homes, fixing them up on weekends, and then reselling them. Commercial real estate investing itself can be a bit exotic, with purchase and leasing deal language that’s equally exotic.
Though it usually requires more hands-on attention, residential real estate is easier to not only finance but also manage.
The world is fast developing and there is a trend that people love to play and work in the same area.
So, whatever parts of the market you choose to invest in will always be a win-win investment.