REAL ESTATE

May 4 2020

#Residential real estate #Residential #real #estate



Residential real estate

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Commercial Vs Residential Real Estate Investing: Which Strategy Is Right For You?

Key Takeaways

Deciding between commercial vs residential real estate investing is not a decision that will be made overnight. Each strategy offers its own set of benefits as well as its own set of challenges. The path an investor chooses to take will depend on his or her goals, risk tolerance, liquid capital, and time. Review the following benefits before making your final choice.

What Is The Difference Between A Residential And Commercial Property

The technical difference between a residential and commercial property is as follows: Residential real estate is all single family type homes and one to four unit rental residences while a commercial property is anything with five or more units. Condos, duplexes, and quadruplexes make up residential real estate while office, retail, industrial, multifamily (of five units or more), hotel, and special purpose buildings make up commercial real estate.

Another stark difference between commercial and residential properties is in the type of tenant each building attracts. Residential properties are typically leased to families and individuals while commercial properties are typically leased to businesses.

Lastly, each property type comes with a different set of opportunities. Commercial real estate tends to award investors a much wider range of potential investments. For one example, there are more commercial property investment funds than residential ones. On the other hand, residential real estate investing tends to be more hands on.

Benefits Of Commercial Real Estate Investing

Smart investors know that it is of utmost importance to evaluate all the pros and cons before making a final investment decision. However, these benefits of commercial real estate investing are undeniable.

Benefits Of Residential Real Estate Investing

Both commercial and residential real estate investing have positives and negatives. To decide which strategy is right for you, it’s important to review the benefits and determine which ones align more with you and your business’ core values.

Commercial Loans Vs Residential Loans

Traditional residential loans, or residential mortgages, are typically distributed by banks to borrowers. Unlike residential mortgages that are typically between banks and the individual buyers, a commercial mortgage is made to a company. For tax purposes, it is also usually in the best interest of the borrowers to sign as a representative of a business entity — since the property is zoned for businesses uses.

In addition, commercial loans are riskier (in the eyes of lenders) than residential loans. This makes a commercial loan’s interest rates higher and terms shorter. Why? Because there is a whole secondary market for commercial lenders that is separate from traditional banking institutions.

In order to qualify for a commercial loan, investors are required to have a business plan as well as a solid credit score — for the most part. Commercial lenders are more concerned with the property’s projected cash flow than residential lenders are. They will want to know who will pay utilities, what type of maintenance will be required, and more before approving the loan.

Finally, the terms, conditions, restrictions and penalties vary greatly between commercial and residential loans. Homeowners usually finance their properties over lengthy periods of time. — most commonly with 30-year fixed rate mortgages. Although residential buyers have many other loan options available, this time frame is ideal due to a longer amortization period that creates smaller monthly payments. Residential loans are typically amortized over the life of the loan so the loan is fully repaid at the end of the term. Unlike residential loans, terms for commercial loans typically range from five to 20 years, and the amortization period is often longer than the loan term. Commercial lenders are also able to customize the loan repayment schedule to each borrower’s specific requirements.

Commercial Vs Residential Electricity Rates

The quality of the energy consumed in commercial and residential properties is exactly the same. However, because commercial property owners tend to have to buy electricity in bulk, electric companies often offer discounts and different tariffs to them. These commercial electricity tariffs often allow business owners to purchase electricity at a cheaper rate because the volume that they must consume ensures that electricity companies will recuperate ample funds for their energy.

What Is Passive Commercial Investing?

Passive commercial real estate investing allows individuals to opt to invest as a limited partner with commercial real estate companies. While it is entirely possible for an investor to become a direct owner of a commercial building, the amount of capital required to do so typically makes it difficult to enter into the sphere. Rehabbing, prehabbing, and wholesaling commercial and residential properties is a great exit strategy for those looking to make a living in the real estate. However, for investors seeking a more diversified and balanced approach to real estate investing, they may be better off rethinking these strategies and, instead, opting to build a portfolio of passive commercial real estate investments.

Commercial Property Vs Residential Property: Which Should An Investor Choose?

Choosing between a commercial vs residential investment property is no easy feat to tackle, especially because both come with their own set of benefits and drawbacks. Both will diversify your portfolio, both come with significant tax benefits, and both will bring you one step closer to achieving your goals of financial freedom…So how is an investor to choose?

The answer to that questions ultimately depends on what it is he or she wants to gain by investing in real estate. Investors should take some time to think about their short and long term goals. If they are looking to make a quick buck to start, rehabbing or wholesaling a residential property might be the way to go. If, on the other hand, they are in it for the long haul and looking to achieve passive income, commercial properties offer attractive benefits.

If you want to earn the most returns, you might want to consider investing in commercial real estate. On the other hand, residential properties may be more appealing if you’re more comfortable working on a small scale. Thinking about how much time you’re willing to devote to your project as well as your risk tolerance can make it easier to decide where to invest your money.

Commercial vs residential real estate investing, which strategy will you choose? Share your answer, your story, or your experiences in the comments below!


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SOURCE: SOURCE: NEF6.COM

Commercial Vs Residential Real Estate Investing: Which Strategy Is Right For You?

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