The real estate universe almost all the time boils down to two things, to invest in commercial properties or residential properties.
It is very common for investors who sell residences to think they have the knowledge and skills to enter in the commercial real estate game, yet they are often unaware of the big differences between the two markets.
If the residential real estate investor does not have an optimal understanding of property valuation, income structure, and the various segments of commercial real estate, the only thing he/she may gain is a headache.
We have summarized in this article some key factors that every residential investor should take into account before getting involved in the world of commercial real estate.
1. The network of contacts is the basis
The way residential real estate agents work is totally different from commercial real estate. In the commercial sector you ought to have a wide network of contacts, and the bigger the better.
2. Know the real estate market
Real estate is divided into 4 main groups: industrial, office, retail and hospitality. Within these segments there are investors who buy and sell regularly and are very specialized, so it is important that residential investors seeking to enter the commercial real estate arena know how to move with accuracy and caution, because they must know the competitors very well.
3. Residential Real Estate Owner’s Tastes
The size of the transactions is a differentiating factor between commercial real estate and residential real estate, however, there are houses that can be sold for millions of dollars and also
commercial assets for very few thousands and the only thing that differentiates them is the use that each one has. In the case of residences, the whims of a landlord can greatly affect the sales prices, however rents in commercial properties are based more on profits.
4. Financing facility on properties
Rental contracts for commercial properties are longer than it is possible to obtain higher returns, however, residential real estate tends to be less complicated. Financing for residential properties is much easier, while commercial properties tend to be more expensive and require more upfront capital.
5. Residential properties are an emotional acquisition
You can’t compare true oranges and apples, just as you shouldn’t compare commercial and residential real estate. Commercial properties are a numbers game where the basis is KING, while
residential is more emotions and feelings. Let’s look at the reality, residences are personal investments so emotions are the basis, in this case the KING is super irrelevant.