Property Investing 101: Commercial real estate vs. Residential real estate

The opportunities for real estate investing in Vancouver are immense. Any type of investment in real estate, whether commercial or residential, is worth it. While one is not better than the other, it is important to know what is what to make better decisions on how to invest your money.

The rules of the game for commercial real estate are very different to those of residential real estate. Residential real estate is seen as the more safe or comfortable investment option, whereas commercial real estate carries more risk.

To understand the difference between investing in residential real estate and commercial real estate, let’s examine the similarities and differences between the two:

Level of risk involved: Commercial property has more people occupying the space being used either by being there permanently or by letting visitors inside. The more people, the more chances of your property getting damaged. The same goes for rent. If 8 tenants decide to not pay rent, you lose much more than if your sole tenant were to not pay in a residential home.

Foreclosures: It is a common myth that commercial real estate properties can’t go on foreclosure. Wrong. Both types, residential and commercial, can get foreclosed by the bank. Buildings owned for commercial purposes can still get taken by the bank for lack of payment.

Cost of investment: The cost to buy commercial property requires greater capital investment. Commercial property is valued higher than residential property, which makes it more difficult to acquire and get your foot in the door. Repairs and maintenance for a building that is going to be used for offices will be more expensive to fix than in the case of a residential property.

Leasing: Commercial real estate leases are usually longer-term than residential leases. While residential leases are usually set for six months to a year, commercial real estate leases can last five years or more, and get renewed automatically. Lease documents are also very lengthy in the commercial properties, not your typical four to five pages in length as seen in residential real estate.

Gains & Returns: Because residential properties are considered low-risk investments, they generate low-returns. Commercial property on the other hand brings both greater risk and returns. The annual returns on commercial property are significantly higher than the ones of residential properties.

Understanding the differences of each side will help you make better decisions when investing in real estate in Vancouver.

There are a lot of responsibilities entailed in managing real estate in Vancouver. Evaluate whether you are able to handle the maintenance issues and other expenses yourself, or if you are going to need a real estate investing company in Vancouver to do so.  A good place to start is with us. The Rich Group is a company that its expertise lies in both commercial and residential real estate. It’s President, Trent Richardson, is well versed in real estate investing in Vancouver, and has an ample amount of experience in these topics.

Contact us today for expert advice on real estate investing..