A Real Estate Brokerage Firm Explains the Different Types of Property
Investors new to the world of real estate can easily feel overwhelmed by all the unfamiliar terms and concepts they need to wrap their heads around before feeling like they can make wise, educated investments. Real estate is a great investment, but between deciding what type of property you want to invest in and finding a local real estate brokerage firm to meet your needs, a lot of work can go into buying your first property.
Hinge Development & Realty has been helping clients grow their real estate portfolios in Nashville, Franklin, and Brentwood for decades, so we know well how many questions first-time real estate investors have. One of the things that can be especially confusing is the separation between commercial and residential property. What is the difference between the two, and which should you invest in?
We handle both commercial and residential real estate brokerage, so we’d like to share our expertise on this topic; let’s look at commercial property first. We also have an experience property management team to ensure you are getting the most out of your investment.
Commercial Real Estate Explained
Commercial real estate is any property that’s being used for commerce, or business. This can include:
- Office buildings
- Restaurant and retail spaces
- Warehouses and industrial buildings
- Special purpose buildings
- Apartment buildings
Any residential property with five or more units is considered a commercial property, so even though apartment buildings are residences for your tenants, they still qualify as commercial properties. Investors have plenty of options for making income with these types of properties.
Pros of Commercial Real Estate
As you can probably imagine, investing in commercial real estate comes with benefits and drawbacks that residential real estate investors don’t have to worry about. Some of the reasons you may want to consider investing in commercial properties include:
- Potential for higher returns
- Longer lease terms, meaning less tenant turnover to worry about
- Greater tenant accountability and potential for more stable cash flow (if the tenant is a large corporation)
- Depending on the lease agreement, the tenant may be responsible for the majority of property management, building repairs, and routine maintenance
- Less restrictive tenant rights, so it’s easier to remove problem tenants if needed
Cons of Commercial Real Estate
Wise investors know to look at both sides of an opportunity before making a move. Before signing the papers on your first commercial property, consider the potential drawbacks:
- Higher risk investment compared to residential
- Higher upfront cost
- Commercial lenders tend to charge higher interest rates and give shorter lease terms
- It can be more work to get a loan from a commercial lender – you’ll need to show them a solid business plan
- More red tape as far as building permits, codes, etc.
- Returns can depend on the economy
Residential Real Estate Explained
As the name implies, residential real estate is property that people live in, rather than do business from. Residential properties include:
- Single family homes
- Duplexes, triplexes, and quadruplexes
As mentioned in the commercial section above, if a residential property has five or more individual units, it’s considered a commercial property.
Pros of Residential Real Estate
While commercial real estate may appear the flashier of the two options, investing in residential properties comes with a lot of benefits:
- Lower upfront cost
- Less red tape as far as permits, codes, and use restrictions
- More tenants to choose from – everyone needs place to live
- Less dependent on the economy
- Residential mortgages are usually longer (about 30 years is common) and have lower, usually fixed-rate interest
- Versatile: you can use the properties for traditional long-term rentals, short-term rentals like Airbnb, or flip them
Cons of Residential Real Estate
Real estate is one of the best investments you can make, but even a small single family property can come with its share of disadvantages, such as:
- Lower returns than commercial investments
- Greater tenant rights, so it’s difficult to remove problematic tenants
- Less tenant accountability – it’s easier for a single person to disappear in the middle of the night than for a whole company
- Shorter lease terms, meaning greater potential for higher tenant turnover
Commercial or Residential: Our Real Estate Brokerage Firm Has You Covered
Hinge Development & Realty is a commercial and residential real estate brokerage firm serving Nashville, Franklin, and Brentwood, TN. Whether you’re a seasoned investor looking to expand your portfolio or brand new to real estate investing, we can help you find the property that fits your needs. If you’re ready to start looking for the perfect commercial or residential property, contact us today.