Commercial vs. Residential Real Estate – Everything You Need to Know

The Basics of Residential Real Estate

For beginners, residential real estate is often easier to follow because it’s relatively simple to understand. Any dwelling with one to four units is considered a residential property. Apartment complexes and other communities with more than four units are dealt with as commercial real estate and are subject to different restrictions and financing terms.

Pros of Residential Real Estate

The most significant advantage of residential real estate is that there are low barriers to entry and it’s easier for beginners to get started. Some borrowers can buy a one or two-family home and turn it into an investment property. There is also a steady demand for renters in many parts of the country. As home values rise and price people out of the market, more people will be forced to rent and demand for housing will rise.

Residential real estate is also relatively consistent in economic downturns. In the case of COVID, businesses had to shut down and commercial real estate investors didn’t have tenants who could pay their rent each month now that their businesses were forced to close. People will always need a place to live, making residential real estate remain strong in economic downturns.

Commercial Real Estate

Commercial real estate is any property used for business purposes rather than a living space. It also includes communities with five or more units used as apartments or dwellings. 

Commercial real estate is known to have high barriers to entry. Most people that get started with commercial real estate investing must save up for years and then start small with apartment complexes and hope to turn a profit. Commercial real estate is also capital intensive, meaning you’ll need a lot of operating income if you want to succeed with commercial real estate.

Which is right for you?

Commercial real estate investing tends to be more lucrative if you can get your foot in the door. However, unless you inherited money or have a lot of disposable income, it will be hard to make it big in commercial real estate in a short amount of time.

Residential real estate is typically the best way for new investors to get started. You’ll inevitably make mistakes, so it’s good to make and learn from your mistakes when you aren’t dealing with multi-million dollar apartment complexes or office buildings. Residential real estate is more stable when the economy isn’t performing well, and there is generally less risk involved.

Find out why Kaya Homes is the leader in Long Island real estate and are your go-to realtor in the Lynbrook, Oceanside, Malverne, Hewlett, Valley Stream, East Rockaway, Woodmere, Cedarhurst, Hewlett Harbor, and Freeport area.