At Caldwell Commercial Real Estate, we’re experienced in investing in commercial real estate, but if you’re not familiar with the particulars, then it can be daunting to think about venturing into this sphere. Before you make a plan to invest in commercial real estate to diversify your portfolio, here are some basic things to know:
The Differences Between Residential and Commercial Investment
While you may think that real estate is real estate, there are key differences to consider when comparing commercial and residential properties. While there is overlap in the principles of investing in these different types of property (for example, both can be picked up as foreclosures), it’s not all the same. Most people are probably more familiar with the workings of residential real estate, but a different set of knowledge is key to successful investment in commercial real estate. From the way things are valued to how long a building is leased, you should be in the know about certain facts before you start investing.
- Commercial real estate is valued differently, both in how it produces income, and how it is handled by banks. Generally, commercial real estate generates income is linked directly to the usable square footage of the space. In the case of the bank, they’ll want a higher down payment for a commercial property than for a residential one.
- Leases for commercial real estate are usually much longer than those in residential real estate. This is handy for keeping a stable cash flow.
- Speaking of cash, your income per square foot is often higher in commercial real estate. Renting or leasing a multi-unit commercial space is going to generate more income than a single home.
- Commercial real estate can help you lower your risk for losing income. A tenant renting a single family home leaving removes your income from the property altogether, while a tenant from a multi-unit building leaving is less of a blow.
Now that you know some of the differences between commercial and residential real estate investment, you’re ready to learn a bit more about why investing in commercial real estate could be right for you. Stay tuned!