What is the Difference Between Commercial and Residential Real Estate Investing?

When it comes to investing in real estate, there are two main categories: commercial and residential. Commercial buildings include apartment complexes, industrial spaces, hotels, commercial spaces and office spaces. Residential real estate is any property that has between one and four residential units. This can include a single-family home, a townhouse, a condominium, a mobile home, or a multiplex building.

The primary distinction between commercial and residential real estate is the risk profile of the underlying income stream for the investor. Investing in residential properties is often seen as a lower risk option for those just starting out in the real estate market. Examples of multi-family residential homes include apartments, condominiums, grouped apartments, etc. As a result, residential real estate often involves an emotional element since it involves renting their primary place of residence to individuals or families.

In contrast, commercial real estate is more profitable square footage which equates to more tenants and more rental income; therefore, more profits. It's also easier to qualify for business loans based on your experience in the field and the total value of the loan. Additionally, commercial property leases are usually longer-term which makes cash flows much more stable and secure than those of residential properties. On the other hand, in the case of residential property, rental contracts are signed for a short time and are less complex.

Many investors manage assets themselves and if real estate is not their main specialty this can sometimes lead to mismanagement meaning that maximum value is not extracted from the investment. For these and other reasons, many new residential investors are faced with more costs than income and are barely making a profit. If you're considering investing in real estate it's important to understand the differences between commercial and residential properties. Companies like Jasper are providing all investors with access to a sector that was once elusive by reducing capital minimums in high-quality institutional commercial properties.

Learn everything you need to know to start investing in office, retail, industrial and multifamily real estate.