You may be wondering what type of real estate you should invest in. Well, you’re at the right place to help you figure this out. Should you specialize in family homes or condominiums, or should you buy anything if it looks like a good deal? Before you decide what you should do, let me describe the two main types of real estate available.
The two main types of real estate are residential and commercial. Residential properties are considered anything that people can live under, such as single-family homes, duplexes, condominiums, and apartment buildings. Commercial properties consist of places where people do business, such as office buildings, retail space, and warehouses.
So given the choice between residential and commercial properties, which one should you choose? Although you can make money in both types of properties, I prefer and recommend residential properties for one simple reason.
Everyone needs to live somewhere, so residential properties are usually priced lower than commercial properties, thus making them more accessible to the average investor. Depending on your area, typical residential properties can range from $50,000 to $500,000 while commercial properties may start at $500,000 and increase to several million dollars or more.
Understanding the residential market is also much easier than understanding commercial real estate. For most people, their first experience with real estate is buying or selling a home, so lenders and agents are accustomed to helping you understand and get started in buying or selling, so these properties tend to be bought and sold by experienced real estate investors.
You can purchase with little or no money down because banks and other lenders are more willing to extend credit to home buyers. In the unfortunate event that someone can no longer afford to make mortgage payments on their home, banks know that they can quickly get their money back by selling the foreclosed property.
Commercial properties usually require more money upfront because banks know that commercial properties are typically more difficult to sell. Best of all, residential properties can be not only an investment but also a place for you to live. If you buy a duplex or an apartment building, you could live for free in your own property while letting your tenants pay your mortgage with their rent money.
Another key point to remember is residential properties are also more flexible as an investment tool. Most commercial real estate investors make their money by leasing retail space to businesses such as restaurants, shops, or offices. If you can’t find a business to lease your space, you don’t make any money but you still have to pay your property taxes and meet your mortgage payments every single month.