Commercial real estate is property used exclusively for business-related purposes, while residential properties are for living spaces. Examples of commercial real estate include office buildings, retail stores, industrial sites, hotels, and other special-purpose buildings. On the other hand, residential real estate involves condos, duplexes, townhouses, and other properties intended for dwelling purposes.
Commercial real estate can be anything from an office building to a restaurant or a warehouse. Resorts, strip malls, entertainment centers, museums, healthcare facilities, and shopping centers are all examples of commercial real estate. Multi-family properties may also be considered commercial real estate when they have more than five units. You can find investment opportunities in commercial real estate by leasing it out to businesses or reselling it.
Commercial Real Estate vs. Residential Real Estate Investments
When choosing between investing in commercial or residential real estate, many people will start by determining which comes with higher risks or with higher ROI. However, something to consider before anything else is the type of tenants you want to attract and sign leases or contracts with.
Because commercial real estate is for profit-generating purposes and residential real estate is for living purposes, the two types of real estate attract different types of tenants. Business owners and other types of investors will lease commercial properties to conduct their business, such as a company leasing an office space for their workers or a retail business leasing space to sell their products.
Business owners and companies may mean more qualified tenants, more professional relationships, and longer-term leases. When businesses lease spaces for their operations, they tend to be more respectful of the property, taking better care of it and even investing in improvements. Because while the property may not be theirs, they tend to establish a sense of ownership because their market has associated their brand with the location.
On the other hand, families and individuals will look for residential properties to buy or rent to live in. Therefore, as a residential real estate property owner, you would be marketing to families or individuals. There are many challenges to real estate ownership, including finding and keeping tenants, property maintenance, and changing regulations. As the property owner or manager, you would be responsible for screening tenants and conducting background checks. You would also need to draw up a lease agreement that represents your best interests while also catering to changing consumer demands in rental property. Additionally, most municipalities have built in more protections for the tenants of residential income properties, than for businesses in commercial buildings.
While residential real estate has its challenges, many investors are willing to navigate through them because they have proven to be reliable forms of investment and good hedges against inflation. With rising construction costs, gas prices, and inflation, it’s harder for consumers to buy homes and more expensive to borrow. Because home ownership has become more difficult, more people are sticking to renting, which means a stable demand for residential real estate.