When it comes to real estate investing and, more specifically, real estate investing for beginners, it is of crucial importance to mention that before jumping in and buying an investment property, an investment strategy should be selected. An investment strategy might be defined as the realm in which the investor is willing to proceed with his/ her investment properties. Such branches of real estate are residential real estate investing and commercial real estate investing. Today, we will review what it means to be a residential real estate investor and a commercial real estate investor. Moreover, we will review the advantages and disadvantages of each rental strategy. Lastly, we will compare residential real estate investing and commercial real estate investing to draw some conclusions. Ready? Let’s begin!
If you are interested in learning more about the different investment strategies, make sure to check out “Top Six Real Estate Investment Strategies.”
#1 Residential Real Estate Investing
Residential real estate investing has everything to do with providing accommodation. The latter involves owning and managing rental properties of any property type: single family homes, condos, apartments, etc. A residential real estate investor can also be the one who fix-and-flips investment properties and sells them for non-commercial purposes to people to live in or a landlord to rent them out. You can imagine the picture, right? Well, residential real estate investing has a very positive side when speaking about real estate investing for beginners. This strategy allows new real estate investors to enter the world of real estate relatively easily, but more on that note later.
Now, let’s pay some attention to commercial real estate investing.
#2 Commercial Real Estate Investing
Commercial real estate investing, on the other hand, is investing in properties which are not meant to provide accommodation. Such properties are usually used for business purposes. A specific commercial property type is the shopping center and so are the business and office buildings. These investment properties are considered to have an extremely high return on investment. However, they are far from being low risk investments. If you want to know how to succeed with this investment strategy, please visit “What Are the Best Ways to Make Money in Commercial Real Estate for Rent?”
#3 Residential Real Estate Investing: Pros
As with every other investment strategy, residential real estate investing has its benefits and negatives. Here are the positives that make it worth it to become a residential real estate investor.
Easy to Enter the Market
What we mean here is the fact that the beginner real estate investor does not need to have vast knowledge and experience in the field. Of course, you need to know the basics- how to conduct research in order to find the best real estate investments, property management guidelines, etc. However, you do not need to know every detail of the market. Thus, you might also become one of the most successful real estate investors without the help of a real estate agent.
Another benefit is that you can easily become a landlord even if you do not have a lot of money in your pocket. This is due to the fact that the residential property price is much lower than the commercial property price. Also, it is easier to get a mortgage loan for residential rental properties.
High Demand Levels
Even though the rental supply is higher in residential real estate investing, the rental demand is also higher when compared to commercial real estate. This phenomenon is pretty self-explanatory- people will always need a place to live in. Therefore, it would not be as hard for a landlord to find tenants to occupy his/ her investment. This also helps in categorizing residential income properties as low risk investments.
#4 Commercial Real Estate Investing: Pros
Commercial real estate investing has its advantages as well. Here are the main reasons you might want to become a commercial real estate investor.
Yes, commercial real estate investing properties generate extremely high rental income. However, you need to consider that they are also associated with high rental expenses. Anyway, if you manage to select one of the best real estate investments and manage it properly, you will certainly be on the right path of getting rich from real estate.
Low Competition Levels
Due to the fact that commercial real estate investing properties are expensive and hard to maintain, there is not much competition in the market. Consequently, you will have a higher chance of finding occupants for your investment property.
#5 Residential Real Estate Investing: Cons
Of course, as with anything else, residential real estate investing has its disadvantages as well. Here is the main one which every beginner real estate investor needs to consider.
High Competition Levels
As previously mentioned, the rental supply of such investment properties is pretty high. This might be partially explained by how relatively easy it is to enter the market and start your real estate investing business. Nevertheless, it is good to note that con and keep in mind that it might negatively influence your rental income. You need to find an innovative way to attract tenants to your investment in particular. You need to show its competitive advantage and create good relations with your potential target group.
#6 Commercial Real Estate Investing: Cons
Commercial real estate investing, besides being a very profitable investment opportunity, hides some obstacles you might face on your way to success. Here is what you would need to think about.
Hard to Enter the Market
First of all, the property price of such a property is nearly impossible to provide for. Thus, buying an investment property for commercial real estate investing purposes might turn out to be a very hard task. There is no need to mention that it is also harder to get financial support for such investments. Moreover, you need in-depth knowledge in order to select the right property. Even some of the most successful real estate investors prefer to work with a team of different consultants, such as a real estate agent and a financer, when purchasing an investment property of this kind. Last but not least, the property management adds to the rental expenses as you cannot fix, clean, and maintain the whole property yourself.
Low Demand Levels
It is true that once the rental property is occupied, it scores a high return on investment. The problem is, though, that the rental demand is low. Therefore, your property might stay vacant for a long period of time. During this period, it will generate a negative cash flow and might ruin your business.
#7 Residential Real Estate Investing vs. Commercial Real Estate Investing
Even though commercial real estate investing might sound like the more profitable and desired investment strategy, we advise you to consider residential real estate investing as well. The latter strategy is much more applicable for new real estate investors as well as investors who prefer not to take high risks. Additionally, residential real estate investing offers various possibilities for development in the field. You might easily choose the career path that suits you best and proceed with learning and getting experience in it.
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Want to invest in residential real estate? Then continue reading about the best locations in the US housing market currently here- “What Are the Best Locations for Cash Flow Properties in the US Real Estate Market?”