If you think that residential and commercial real estate are the same then you need to think again. Residential real estate brokers and commercial real estate agents work in property, but this probably the only thing they have in common. If you have been investing in residential real estate, then you might be thinking that you are qualified enough to experiment with the commercial market. Here are a few differences that set the 2 worlds apart:
1. The Market Has Different Segments:
The market for residential real estate is made up of people who are looking for a new living space, regardless of its type, location, and size. But the commercial real estate market is divided into 4 different groups. These are industrial, office, retail and hospitality. Each group has different needs and concerns. This is why you are probably going to find highly specialized investors who work particularly with one of these segments.
2. Residential Real Estate is Easier to Finance:
People usually think about entering the market for commercial real estate because it yields a higher income. The lease agreements are usually longer and you are going to make a lot of money by leasing your property. However, investing in residential real estate is less complicated. It involves less paperwork and is definitely easier to finance. This is why you need to make sure that you are working with a reliable real estate broker before getting involved in any deal.
3. You Can Get Rid of Non-Paying Tenants Fast in Commercial Real Estate:
Residential tenants are protected by a system of rules and laws. Some tenants misuse and abuse the system and might spend a long time without paying any rent. All this time, the landlord is enduring cost and is unable to get them evicted. But it is different if you are investing in commercial real estate. If your tenants are not paying the rent, they will move out and you will be able to rent your unit fast.
4. It is All About Teamwork:
In commercial real estate, the bigger the network you have, the more successful you will be. You will be able to know a lot about the hottest deals just because you know the right people. You need to work with a trustworthy team of brokers, agents, lawyers, and lenders in order to succeed. Finding the right deal takes time but it is totally worth it.
5. Properties are valued Differently:
In residential real estate, properties are usually valued based on the comparison with other similar properties. But it is a different story in commercial real estate. Properties are based according to the income that can be achieved from an investment point of view. This income is affected by a number of industrial and financial standards.
If you have been investing in the residential real estate, you need to take these differences into consideration before shifting to the commercial market. Make sure that you are hiring reliable advisors who will help you find your way.