Residential vs. Commercial Real Estate

What is the difference between residential and commercial real estate?

The main difference between residential and commercial real estate is that residential properties include single-family homes, duplexes, triplexes, and apartments. Commercial real estate can include office buildings, retail storefronts, warehouses, and industrial buildings.

There are a few key differences that you should keep in mind when considering investing in either type of property:

• Commercial properties tend to be much more expensive than residential properties. This means that you will need to have a larger budget if you want to invest in commercial real estate.  
• Commercial properties tend to have longer lease terms than residential properties. This means that you will be locked into a lease for a longer period of time, which can be both good and bad. On the one hand, you have the stability of a long-term tenant. On the other hand, when the tenant leaves, it can take longer to find a new tenant.
• The type of tenants that you will have in your property is also different for residential and commercial properties. In a residential property, you will have individuals or families as tenants. In a commercial property, you will have businesses as tenants. This can be good or bad depending on your preferences. Some people prefer to have businesses as tenants because they tend to be more responsible and cause less wear and tear on the property. Others prefer to have individuals as tenants because they are easier to work with.
• Commercial tenants also expect that you will contribute to the cost of building out their space to meet their business needs.  This will be in the form of a “Tenant Improvement Allowance”.
• Residential tenants require you to be a property manager, or to hire a property manager.  For commercial tenants, this may also be true.  However, some commercial tenants will sign “Triple Net Leases”.  These tenants will take care of their own property and be responsible to pay the taxes, insurance, and operating expenses.

Both types of properties can be a great investment. They both have the potential to grow in value over time and generate rental income.

The advantages of investing in residential real estate include:

• You can get started with a smaller budget.
• The tenants are individuals or families, which can be easier to work with.
• The leases are usually shorter, so you have the flexibility to change tenants more frequently if you get problem tenants.
• Residential properties have a bigger buyer and renter pool.

Now let’s take a look at the advantages of investing in commercial real estate:

• The leases are usually longer, so you have the stability of a long-term tenant.
• The tenants are usually businesses, which can be more responsible and cause less wear and tear on the property.
• The property is usually worth more than a residential property, so you have the potential to make a higher return on your investment in the long-term.
• Investors could potentially obtain tenants on Triple Net Leases.

Overall, both types of real estate investing have their own set of pros and cons. It is important to do your research and figure out which type of investment is right for you.

If you’re still not sure which type of property to invest in, we recommend talking to a real estate professional. A good real estate broker can provide a wealth of information.  Another great resource is your lender.  At Castle Commercial Capital, we are happy to take the time to help you figure out the best path for you.  Feel free to give us a call any time.

Malcolm Turner

248-579-5530

ABOUT US:  Castle Commercial Capital is a nationwide commercial mortgage lender for real estate investors and business owners located in Southfield, Michigan. We specialize in bridge loans for FAST CLOSINGS, long-term rental loans for PERMANENT FINANCING, and SBA financing for business owners looking to grow their business.Deciding whether to invest in residential or commercial real estate can be a difficult decision. Both types of investments have pros and cons. In this blog post, we will discuss the advantages and disadvantages of each type of investment so that you can make an informed decision about which is right for you!