Commercial Vs Residential Real Estate Investing – Which Should You Choose

If you want to start investing in real estate, you have to determine what type of investing you want to do. Do you want to invest in residential property such as single-family or multi-family homes/buildings? Do you want to invest your money into commercial property such as mid-rise and high-rise buildings, warehouses and shopping centers?

Both investment opportunities can be financially rewarding, and both have their pros and cons. Many newbie investors choose residential investments to get their foot into the industry for a very good reason. Of course, commercial investments are good too. Still, why is that people often stick with residential investments over commercial ones? Here we can compare commercial vs residential real estate investing. 

See the 5 different ways real estate makes you money, if you are considering investing in real estate.

Triple Net Lease 

Many would-be investors worry about the costs of maintenance on the property but feel the triple net lease will alleviate the issue. What is a triple net lease? According to the lease, the maintenance costs fall on the company that’s leasing the property. This would mean the investor is safe from any potential cost associated with upkeep. 

Of course, on single-family and multi-family homes, there is no real maintenance to deal with. According to a best practice business model, tenants must pay for the first $200-$300 of repairs and all costs for any negligent repairs. This type of coverage means the maintenance costs are also alleviated.

A savvy investor will budget for maintenance costs on a monthly basis. If there is no maintenance for very little, the excess is put into the maintenance reserve account until the reserve account is full according to plan. This would mean their cash flow isn’t affected. 

Therefore, triple net leases don’t make commercial investments better than residential investments. Let’s continue on with commercial vs residential real estate investing.

Homes Are Always In Need

Prospective investors are hesitant to get into the market because they fear that they can’t lease a property. However, a popular counter-argument is that there is always someone looking for a place to live. Good in theory, but then you’d have to consider the fact that people need to work as well. 

Commercial property leases can go far when a business is anchored to another popular business. For example, a mall that offers a Best Buy and Barnes and Noble (larger, well-known businesses) can help a smaller, more local business nearby. Simply put, it would mean that a prospective tenant is likely to enter into a lease to be near that anchor business. 

If homes are always needed, why would that not be a reason to go with a residential investment over a commercial one? But let’s go on to the #1 factor for me that wins the battle over commercial vs residential real estate investing…

Why I Chose Residential Over Commercial Investments 

The reason that I chose residential investments over commercial ones boils down to a mentor. This person taught me the inner workings of residential real estate, the most influential business model and practices to ensure success. He took time out of his day to teach me what I needed to be successful. 

I have not – even now – found a single mentor for commercial investments – the best practices or models that I need to be successful in my endeavors. I don’t want to go with trial and error, only to find myself making costly mistakes. 

This is the difference between my choosing the residential over commercial to make my investments in. If you can find a person willing to make an effort and teach you what they know, this is the person you need to emulate. 

It was knowledge and a mentor that led to the ultimate decision of investing in residential real estate. Knowing the most effective business models and practices are a magic formula for success.

If you are worried about your time and energy needed to put into residential real estate, see this article The Lazy Way To Invest In Real Estate for tips and best practices
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