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Should I invest in commercial real estate or residential?

On Behalf of | Apr 14, 2017 | Commercial Real Estate |

When Florida residents think of real estate, they think of buying a home to live in or shop to run. However, for many people, real estate is an investment, whether it is a residential real estate or commercial real estate. In fact, many people may already be investing in residential real estate, but adding commercial to the portfolio can help balance it out. However, there are some differences between the two types of real estate to keep in mind when making decisions to invest or not.

First of all, they are valued differently. This means that the income commercial real estate produces is related to the square footage that can be used, which is not the case with residential property. However, it also allows one to diversify their risk. Consider the following situation-if an individual rents out their house to one tenant and the tenant leaves, the landlord loses their entire rent. However, if an apartment building owner loses one tenant out of a 10 apartment building, they are losing only one-tenth of their profit. This also means that the cash flow is greater in commercial real estate and since leases last longer, the cash flow is stable over longer periods of time.

Unfortunately, banks may require a higher down payment for commercial property than they require for residential property. And, as with residential property, doing one’s homework is essential. Prospective buyers should inquire about the vacancy rate and find out whether current storefront managers are planning to renew their leases and is business booming.

Deciding to invest or purchase real estate is a big decision and should not be taken lightly, as people end up spending their life savings in the process. Therefore, it is important to ensure that all legalities are completed and paperwork is accurate and an experienced attorney may be able to help with that.