Investing in real estate is, essentially, equivalent to starting a new job — or rather a new career. There are many reasons why people choose to buy real estate; most of us buy for the first time when we’re younger, fulfilling an immediate need. However, as time goes by you may want to look into gaining money from your property, and looking into real estate investing training. With that being said, a lot of people see real estate investment as an added layer of financial security. Even if you lose your job or take a financial hit, you can always fall back on your investment portfolio — to an extent. Nonetheless, there are risks and rewards that come with real estate investment just as there are with other forms of investment. The past couple of decades have proven that, though the real estate market is more stable than some of its alternatives, it can still be subject to changes and fluctuations. Then there that big question that will probably come up fairly early in your real estate investing training — should you invest in residential or commercial real estate?
Though it is possible to invest in both residential and commercial real estate, to start out most investors choose one over the other. Residential real estate, of course, covers homes. Essentially, the income is from tenants who will live in the houses, apartments, or other residential spaces that you own. Commercial real estate, on the other hand, is a broader category. Restaurants, office buildings, and warehouses all fall under commercial real estate. You can look at the two as home versus work. Both offer a lot of potential to investors, and both come with individual challenges as well. You may be impulsively drawn to one over the other. If you are new to real estate investments, commercial real estate may be somewhat intimidating — you may already own a house, but you’re less likely to own a warehouse. But before you make the decision to move forward with one type of real estate over the others, you should look at both, weighing the pros and cons of each one. That’s why you should look into real estate investing training, and furthermore, that’s what we’re here for — to figure out which option is right for your purposes and goals!
What Are The Advantages Of Investing In Residential Real Estate?
Again, a lot of people are impulsively drawn to residential properties when looking into real estate investing training. If you’ve already owned a house, how much harder can it be to rent out a home? The leap from typical homeowner to landlord doesn’t seem that difficult, and in many ways, it isn’t. It is easier to enter the residential real estate market than it is to enter the commercial real estate market, which is a big advantage of investing in residential real estate. Residential properties tend to be, at least in the beginning, less expensive than commercial properties — 2019 saw the average commercial real estate property cost $1.2 million. It can be easier for new investors to put forth the amount of money necessary to get the residential property they want — and easier for them to be approved for the necessary loans as well.
You’ll also find that it’s easier to secure reliant tenants in a residential home, which in turn means that you can depend on the income you’ll receive from that property. This isn’t so much because the tenants in commercial buildings are unreliable in terms of making their payments. Rather, it’s simply more likely that a renter of a residential property is looking for a long term rental. Tenants of commercial buildings are more likely to move from one building to the next, depending on the needs of the business owners. Therefore, you’ll have to worry more about a regular income from the property, as well as advertising and securing new tenants. It does take a while to find the right tenants at times — you will have to screen people, and that in itself takes some level of investment.
There is also a certain degree of red tape to worry about regarding commercial properties, which you don’t have to consider on the same level with residential properties. Of course, this all depends on where the property is located. And with either type of property, you can use the services of a property management company. But in general, you’ll need to be sure about a lot more regarding commercial real estate and zoning laws. You’ll learn more about zoning laws as you delve deeper into your real estate investing training. It’s also important that you’re aware of the ins and outs of your commercial real estate properties at all times — if a worker is, for instance, injured on the property, you could potentially be blamed. Therefore, you’ll want to know everything from the factory layouts of the buildings you own — should they be necessary — to the functionality of their commercial elevators. There is simply more room for error with these types of properties as opposed to the more straightforward residential properties.
What Are The Advantages Of Investing In Commercial Real Estate?
You may be surprised, when undergoing real estate investing training, to find that many investors prefer commercial real estate over residential real estate. While this may seem confusing at first, once you understand the advantages of investing in commercial real estate you may want to move forward with that type of property yourself. For one thing, there is a higher return with commercial real estate, even if the initial risk is higher as well. Consider the types of office buildings or warehouses that you’re familiar with. A commercial building is often divided into different suites — which means that, though you may cycle through tenants more often, you’ll also have the capacity for multiple tenants. While a residential property can offer the potential for multiple tenants as well, there’s simply more demand for this type of situation in commercial real estate. These tenants will often pay more outright as well. So, though you may initially put more into a commercial property, you’ll also likely get more back. This is perhaps one of the most crucial lessons you can take away from real estate investing training — there is merit to playing a game that is high risk and high reward.
While you may have to worry about business owners outgrowing your commercial property, or simply moving on to one that better suits your needs, there are benefits to dealing with these types of tenants as well. If they run successful businesses, they are likely qualified to rent outright. For that matter, you don’t need to worry about the personal dramas that can sometimes interfere with the working relationships you may try to build with residential tenants. Companies put function over their personal preferences, and as long as the business is successful you can usually trust them to make rent on time.
For that matter, those that offer commercial real estate properties to tenants sometimes have the opportunity to take advantage of triple net leases. You’ll likely learn more about triple net leases during your real estate investing training over time, and they can vary depending on the case. Most of the time, a triple net lease means that you as the investor don’t have to worry about the property’s expenses. The tenant takes those on. This might not make sense if you’re used to the idea of residential properties. But with a triple net lease, the tenant takes on the expenses specifically because they can pay to alter the property to suit their own needs and brand. This means that you as an investor won’t have to pay for much in terms of maintenance at all. While you can adapt a residential property’s lease to suit your own needs — a triple net lease can only apply to commercial properties.
What Is Expected Of Investors?
In this day and age, real estate investors have become, in some ways, different kinds of landlords than they once were. Where once being a landlord meant being involved with the property you’re renting and interacting with tenants personally, now it’s more common to leave the details in the hands of property managers. You don’t have to be much more involved beyond your money — or you could be heavily involved. But there are certainly different expectations to have in mind when investing in residential real estate versus commercial real estate.
You may find that investing more into a lower-cost residential property is more your style. This is sometimes referred to as “flipping” houses. You may buy a home that has been damaged, or needs a good bit of restoration or remodeling, for a lower price. Before putting it on the market, you’ll invest to add value to the home — perhaps through new flooring or a finished basement. On the other hand, if you don’t hit the right market or right types of restorations, you may end up investing more than you should in the long term. Furthermore, some of the investments that come with an older property are less fun — replacing a heating and cooling system, for example. For that matter, if you don’t particularly enjoy remodeling and want to stay hands-off, flipping houses may not be for you. Of course, you could always choose a new construction house, investing in an up and coming neighborhood before it hits big. There are many different ins and outs of the residential property sector that are very depending on where the property is located, as you’ll discover when exploring real estate investing training.
Commercial real estate, as we’ve discussed, involves more specific regulations and obligations. However, you can particularly benefit from a triple net lease, which means that you won’t have to worry about the same degree of investment over time. More will be required upfront financially — but you don’t necessarily need to worry about getting your hands dirty. Much of the reason why many who are taking on real estate investing training prefer commercial real estate is that it’s often utilized simply as a form of secondary income. You don’t need to have much of an opinion about what the property looks like or who your tenants are; you can leave much of it to property managers. As you’ll learn during your real estate investing training, landlords of commercial properties often only get involved when they’re absolutely required. In the long term, this can make life much easier for you.
Ultimately, whether you prefer residential real estate or commercial real estate is largely dependent on how involved you want to be and the type of income you wish to have. Although you can eventually delve into both types of properties, when you begin your real estate investing training you should focus on one over the other. Become an expert regarding one type of property, and the other will be even easier to handle. Of course, the outcome of your investment is often very dependent on the individual property itself. Don’t feel as if you have to gamble on a property that doesn’t seem just right. Take the advice of more experienced investors, and follow your interests. If you’re careful and calculated, you may very well be able to rely upon your income from investment properties in the future.
AUTHOR: CAROLINE SIBLEY
Caroline is a freelance content creator and creative writer. VCUArts alum with a focus on the arts, travel, and culture.