Welcome to my blog on the basic difference between residential and commercial investment property investing. I’ll be discussing the key characteristics of these two types of properties so you can make an informed decision about which is right for you.
Whether you’re a seasoned investor or just starting out, this information will be useful in helping you understand the pros and cons of each type of property and how they can fit into your investment portfolio. My name is Brian Johnson and I’m a real estate broker here in Spokane with Windermere Valley Liberty Lake. If you have any questions about real estate buying or selling, feel free to reach out. My contact information is right here. I work with my YouTube clients all the time and they’re my favorite clients, so don’t be shy about reaching out.
Residential investment property refers to any property that is used as a personal residence or dwelling. This could include single-family homes, apartments, condos, townhouses, and other types of properties that are used for living purposes. Residential properties are typically owned by individuals or families, or individuals who have small corporations or LLCs, and they may rent out these properties to tenants. The primary focus of residential investment property is to provide a place for people to live rather than for business purposes.
Residential properties can provide a steady stream of rental income for the owner, but the income is typically lower and less consistent than commercial properties. Commercial investment property, on the other hand, refers to any property that is used for business purposes. This can include office buildings, retail spaces, warehouses, manufacturing facilities, and other types of properties that are used for conducting business.
Another key difference between residential and commercial investment property is in terms of tenant demographics. Residential properties are typically rented out to individuals or families who use the property as a personal residence. Tenants of residential properties may include students, young professionals, families, seniors, and others. Pretty much all of us. On the other hand, commercial properties are typically rented out to businesses, organizations, or individuals who use the property for business purposes. Tenants of commercial properties may include small businesses, large corporations, non-profit organizations, government agencies, and others. The tenant demographics for commercial properties tend to be more diverse and varied than those for residential properties, as commercial properties are used for a wide range of business purposes.
Another difference between residential and commercial investment property is in terms of the type of property. Residential properties can include single-family homes, apartments, condos, townhouses, and other types of dwellings that are used for personal living purposes. These properties may be standalone structures or part of a larger development or community. On the other hand, commercial properties can include office buildings, retail spaces, warehouses, manufacturing facilities, and other types of structures that are used for business purposes. These properties may be standalone structures or part of a larger complex.
The type of property can have a significant impact on income potential and overall value of the investment, as well as the level of management and maintenance required. Additionally, when it comes to financing, it’s important to note that a house up to a fourplex is considered residential real estate. Commercial real estate starts at five units and above when it’s rental real estate. So, you can get a residential owner-occupied loan on a single-family house, a duplex, a triplex, or even a fourplex, as long as the owner of the property is living there. That’s a big difference between residential and commercial rental properties. Commercial financing can be more difficult to obtain, but can also offer higher returns on investment.
In terms of income potential, commercial properties generally have the potential for higher rental income due to the fact that they are used for business purposes and often have multiple tenants. However, the income from commercial properties can be more unpredictable and may fluctuate based on the success of the businesses occupying the property.
When it comes to management and maintenance, residential properties generally require less maintenance and management due to the fact that they are occupied by individuals or families who are responsible for maintaining the property. Commercial properties, on the other hand, may require more maintenance and management due to the fact that they are used for business purposes and may have multiple tenants. The level of management and maintenance required can also depend on the type of property and the specific needs of the tenants.
In terms of financing, as mentioned earlier, commercial properties may be more difficult to finance due to the higher risk associated with them. However, they also have the potential for higher returns on investment. Residential properties, on the other hand, may be easier to finance due to the lower risk associated with them, but they also generally have lower returns on investment.
In conclusion, understanding the basic differences between residential and commercial investment property is important in determining which type of property is right for you. Both types of properties have their own unique characteristics and can be lucrative investments, but it’s important to consider the pros and cons of each and how they fit into your overall investment strategy. If you have any questions about real estate investing or are considering buying or selling a property, don’t hesitate to reach out to a professional like myself.