commercial-vs-residential-real-estate-1

Commercial vs. Residential Real Estate

Investing in real estate is a great way to begin diversifying your portfolio, but for those unfamiliar with the industry, it can be hard to decipher which properties are best to invest in, and, frankly, quite overwhelming.

Commercial vs. Residential Real Estate

Investing in real estate is a great way to begin diversifying your portfolio, but for those unfamiliar with the industry, it can be hard to decipher which properties are best to invest in, and, frankly, quite overwhelming. Before making a decision, it’s important to first take a step back and understand the two overarching terms in the real estate space: commercial and residential.

The Basics

Commercial real estate encompasses retail, office, flex and industrial space, and is used exclusively for business or work purposes. These properties come in a variety of forms, ranging from apartments, warehouses, self-storage, office buildings, shopping centers, etc. Most of these buildings are owned by investors who lease the space out to businesses, typically for a long period of time.

On the other hand, residential real estate is any property that’s been developed for living. Though this mainly consists of single family homes, it may also include townhomes, condos, duplexes, etc. Depending on local laws, certain residential properties can be leased out as short term or long term rental properties (like AirBnBs for example).

Financial Differences

While these property types differ in use and occupancy, there are some financial differences to keep in mind, as well. Some top factors include:

  • Return on Investment
  • Lease Types (like Triple Net Leases)
  • Value in Property Over Time
  • And Lease Terms

Typically, in a commercial investment, investors will stay in the property as a limited partner for a long time span, bringing in an increased rate of return on the investment and the ability to secure longer lease terms from tenants. This type of investment helps diversify risk in your portfolio and remains steady over the time span selected (typically 5-10 years). Commercial real estate also tends to increase in value over the investment life with things like tenant improvements and rising rent prices.

For the normal single family home, investors are expecting less risk, shorter lease terms, and the ability to get their cash out fast, if needed, by selling the property at a short term gain. These investments are great for beginning investors or the general public and do not require much capital up front, as there are more financing options available.

Which is a better investment vehicle?

While both commercial and residential can offer excellent investment opportunities, they’re two completely different worlds, and they come with their own set of pros and cons. It really comes down to your personal investment strategy and what you’re looking for. If you’re interested in a long term investment with higher returns, you may find commercial real estate aligns well with your goals.

If you’re interested in learning more about the commercial real estate space, or simply have any questions about the industry in general, we’d love to connect with you.

Previous Articles

the-ultimate-guide-to-commercial-real-estate-investing

The Ultimate Guide to Commercial Real Estate Investing

Learn everything you need to know to assess the benefits of a commercial real estate investment and make the best decisions to get started.

3-questions-to-ask-investing-in-a-commercial-real-estate-property

3 Questions You Should Ask Before Investing in a Commercial Real Estate Property

Every commercial real estate transaction requires thorough due diligence by the sponsor, but it’s just as important that you, an investor…

2021-in-review

Excelsior’s 2021 in Review

The alarm shrieks me awake at 4:10 in the morning. My faithful corgi, Tango, greets me at my bedside, and I groggily make coffee…

why-is-a-rent-roll-important-to-investors

Why is a Rent Roll Important to Investors

If you are going to invest in real estate, then you must understand two important concepts that directly impact the underwriting and analysis process.

what-is-a-1031-exchange

The Nuances of 1031 Exchanges

To go more in depth on the nuances of 1031 Exchanges, you will learn more about what a 1031 exchange is and what it is not.

using-ira-funds-to-invest-in-alternatives

Using IRA Funds to Invest in Alternatives

Using IRA Funds to Invest in Alternatives. In this blog, we’ll highlight one of the lesser known investment vehicles…

understanding-triple-net-leases-blog

Understanding Triple Net Leases

A triple net lease, often shortened to “NNN Lease”, is probably a term you’ve heard thrown around in the commercial real estate space.

Excelsior Capital

A real estate private equity firm that owns and operates high quality multi-tenant office assets in emerging secondary markets.

Interested in learning more about Excelsior's investment opportunities?
excelsior-capital-logo-icon-white

Disclaimer

Under no circumstances should any information presented on this website be construed as an offer to sell, or solicitation of an offer to purchase any securities or other investments. This website does not contain the information that an investor should consider or evaluate to make a potential investment. Other materials related to investments in entities managed by Excelsior Capital are not available to the general public.

Excelsior Capital

104 Woodmont Blvd, Suite 203
Nashville, TN 37205

Contact Us