Residential Real Estate vs. Commercial Real Estate

The real estate industry is exciting and quite profitable, but with the variety of opportunities in the market, it’s common for questions to arise. For example, what’s the difference between residential real estate and commercial real estate? Can I invest in both? What resources are available to me? 

In this post, we’ve answered all of the common questions about residential and commercial real estate. Whether you’re an investor, developer, or potential homeowner, Vastland Company has the answers to your questions and can help find the best fit for you.

What is Residential Real Estate?

Residential real estate covers where people reside, either owner-occupied or rented by tenants. It’s classified by complexes between 1-4 units. Common assets include single-family homes, townhomes, condominiums, duplexes, triplexes, mobile homes, and more. Residential real estate must strictly be used for living, or else city violations will occur. 

What is Commercial Real Estate?

Commercial real estate includes places where people do business. When thinking about this, use the word “commerce†to frame the concept. Some of the typical assets include office buildings, retail stores, warehouses, hospitality, and multifamily (more than 4 units). 

What Are the Pros of Residential Real Estate?

Low Barrier of Entry

Residential real estate is all around us, from large cities to rural communities. This coupled with the usual lower prices creates an easy start to investing.

Easy to Finance

There are a multitude of financing sources available for those investing in residential real estate. These include conventional loans, loans backed by Fannie Mae and Freddie Mac, FHA loans, and VA loans. 

What Are the Drawbacks of Residential Real Estate?

Greater Vacancy Risks

Since residential properties have fewer units, the rates of vacancy have the potential to be higher since it takes longer to find a qualified tenant. To avoid being left in between long time periods with no tenant, purchase residential properties in popular areas. 

Higher Expenses

Compared to commercial properties, landlords are responsible for preserving the property. While this isn’t always an issue, repairs can quickly become costly and time-consuming. With issues like toilets and termites, costs can quickly overtake your revenue. 

What Are the Pros of Commercial Real Estate?

Lower Vacancy Risks

These properties typically have longer lease terms and multi-tenant potential that create lower vacancy rates. These longer leases give ample opportunity to prepare for an upcoming vacancy, which will keep the cash flowing.

Larger Profits

The potential for higher profitability is found in commercial real estate. This is because of the larger rental incomes and the ability to increase value over time. Both of these characteristics allow an investor to make more gross rental income and property value based on the operating income the building generates.

What Are the Drawbacks of Commercial Real Estate?

High Barrier of Entry

Inexpensive commercial real estate can be difficult to find, for good reason. Properties with high value attract big spenders, creating more competition and making it more difficult to purchase and fund.

Harder to Finance

Typically, lenders see commercial loans as riskier, so loan rates become higher and loan term lengths become shorter. Sometimes experience is necessary since many lenders will ask investors about previous successfully commercial properties that generated revenue.

Can You Do Both Commercial and Residential Real Estate?

Yes! It’s certainly possible. However, the more experience you have, the better. Get started with Vastland Company today!

With a reputation for quality, dependability, and customer service, Vastland Company has garnered the respect of the real estate development industry and home buyers alike. Whether you’re looking for a fresh start in a new home or plan to develop an outlet mall, Vastland Company can provide you with fresh ideas and a unique blend of luxury and design.

Let’s Build Your Dream Together

Whether you’re an investor, developer, or potential homebuyer, Vastland Company is here to bring your dream to life. Proudly serving the Nashville area, we are ready to take on new projects or listen to new ideas. Visit us here or call 615-329-1720 to learn how we can assist you in crafting your perfect space.