Although the words commercial and residential real estate investing may sound similar, there is a world of difference between the two. Learning the difference between the two can help you avoid big mistakes.
Residential properties consist of single-family homes, townhouses, and condos in neighborhoods with a wide range of types of residents.
Commercial property is something else entirely. This type of property could be a strip mall or used to house multiple businesses under one roof, such as office buildings, medical facilities, and other similar complexes.
The Benefits of Commercial Real Estate
Commercial real estate encompasses all types of property, including office buildings, industrial parks, shopping malls, and apartment complexes. The type of location determines if it is a commercial or residential property.
Commercial properties are often described as assets. Residential real estate can only be used for one thing: living in. Commercial real estate assets can be multi-purpose and have several uses, such as shopping malls and apartment complexes.
CRE Draws Investor Support for Long-Term Success
Commercial properties are often owned by large companies, investment firms, or investors, while residential real estate is more likely to be owned by individuals.
One reason why commercial properties are so popular with big investors is that rental revenue from commercial real estate can provide a steady stream of income during bad economic times. Residential rental income is more reliant on the ups and downs of the banking industry.
Commercial properties are often income-producing assets, whereas residential real estate typically yields a capital gain when you sell it during good economic times for an overall profit.
Choose CRE for High ROI
Compared to residential real estate, commercial property can bring in much higher returns on investment (ROI). Commercial properties such as shopping malls, strip malls, office buildings, and apartment complexes can have about 30% to 50% annual returns.
In the long run, commercial properties hold their value better than residential real estate because they are income-producing assets that do not depreciate in value. Knowing the main difference between real estate investments can help you make the best decision for your portfolio.