Commercial vs. Residential Real Estate
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).
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.
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.
How Much Money Do I Need to Start Investing in Commercial Real Estate?
We frequently have conversations where people tell us, “I want to start investing in commercial real estate, but I’m not sure if I have the capital.”
Benefits of Owning Commercial Property over Residential
While both types of real estate investments have their benefits, investing in CRE can be more advantageous for several reasons.
The Revolution That Wasn’t
How has technology impacted modern finance and created an asymmetrical relationship between Wall Street and individual investors? In this episode, we speak with Spencer Jakab, the author of The Revolution That Wasn’t and editor of the Wall Street Journal’s Heard on the Street column.
Tax Savings Secrets: How Cost Segregation Analysis Can Save You Money
How can cost segregation analysis help real estate investors maximize their returns? In this episode, John Hanning explores the potential benefits of cost recovery studies and depreciation.
What is a Family Owner’s Manual and Do I Need One?
It’s time to make sure you and your family are set up to continue success for generations to come. Today, Josh Kanter shares his journey transitioning from practice as a transactional attorney to reorganizing his family’s activities under a single-family office.
Key Characteristics of High-Performing Family Offices
Are family offices becoming more popular? In this episode, Robert Daugherty dives into the importance of having a functional family office, and the role of the Chief Learning Officer in it.
Talking to Your Parents about Their Finances
As your parents age, you may find that you want or need to broach the often-difficult subject of finances. In this episode, Cameron Huddleston, an award-winning personal finance journalist, discusses how to have meaningful conversations with your parents about their finances.
Pros, Cons, and Features of Robo-Advisors for the Wealthy
Learn how to amass wealth – the right way, for you. In this episode, Barbara Friedberg, a former portfolio manager and university investments and finance instructor, delves into how robo-advisors have revolutionized traditional financial advisory services.
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?
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.