The differences between residential and commercial real estate are in some ways obvious and in some ways not. Residential real estate investment usually involves the purchase, sale, flipping or rental of residential properties. Commercial real estate investment may involve purchase and sale of commercial real estate, and it may also involve the rental of commercial real estate to business tenants. Some major differences include:
- Residential real estate investment often requires less money to get started.
- Commercial real estate is often more dependent upon a good economy to be lucrative.
- Commercial real estate can involve bigger returns.
Within the commercial and residential real estate categories, there are different types of investment. Knowing the different types of real estate investment can help Hillcrest home buyers decide whether real estate investment is for you. If you're a beginner who is thinking about getting into real estate investment, here's what you need to know.
Residential real estate can be broken into three major categories.
Fix and Flip
Fix and flip real estate investment starts with buying a home that could use repair or maintenance. Once the home is purchased, it's fixed up to increase its value, then it's sold again. Fix and flip is a good investment for people who are handy and who like to fix things themselves. Those who must hire a contractor to make all the repairs will make less money when the house sells again.
Single-Family Home Rental
Single-family home rental is a good way to rent to tenants and make money on the side. Many landlords with rental homes are people who have inherited a house and have decided to keep the property and rent it instead of selling it.
Single-family home rental is an easy way for everyday people to get started with real estate investment. People who would like to purchase and rent a single-family home need to understand tenant rights and tenant protection laws in their area, and should consult with a lawyer before getting started.
Multi-family buildings can be a bigger investment and may require more money up front, but they can also make more profit. Multi-family buildings are properties with multiple units for rent to multiple tenants. When someone moves out, as long as other units are occupied, the building will continue to bring in money. Often, landlords of multi-family buildings will hire a property manager or a superintendent to take care of the property.
Like residential real estate, commercial real estate can be broken down into different categories. Each type of commercial property is very different. Choosing the right type of commercial real estate for the area is important.
Investing in retail real estate involves the purchase and rental of a property, which could be used for retail purposes like restaurant space or a store. Some retail space has multiple units for multiple types of businesses. Some retail space is even a mixture of retail on the first floor, and office space or apartment rental on the floors above.
When choosing a retail space, it's important to analyze the location, the economy in the area and the condition of the building. Shoppers are often deterred by businesses in poor condition, and if the economy is bad, they may not be able to support those types of businesses. This can make it difficult for a landlord to keep a tenant in their space.
Industrial real estate space is often specialized for the type of tenant who is renting the space. Industrial real estate can be very lucrative but it is difficult to get into because it requires specialized knowledge of the needs of the tenant. However, investors who have the start up capital and who are able to invest in specialized equipment for their tenants may be able to bring in a lot of money over time.
Office buildings typically consist of multiple tenants who rent the space for their businesses. Like a multi-family apartment building, even when one tenant moves out, the building will continue to bring in money as long as the other tenants remain in place.
Like retail space, office space must be well-maintained in order to keep tenants happy. Landlords who take care of their property can charge more for the use of their space, and may also find it easier to keep their tenants over a long period of time.
Contact a Real Estate Professional
Are you thinking about getting involved in real estate investment? Then it's time to align yourself with some professionals. Contact a real estate agent in your area to learn more about the business, learn more about investment in the area where you're located, and decide which type of investment is right for you.