Is Residential Real Estate Investing Right for You?

Most real estate investors get their start with residential real estate investing rather than investing in commercial property. In many ways residential real estate investing is less competitive and requires less capital to get started. However, there are also advantages to commercial real estate investing as well. Before you start investing in real estate you should carefully weigh the advantages and disadvantages of different types of property ownership and determine which fit with your own strengths and weaknesses as well as your personal real estate investing goals.

Residential real estate investing generally requires less capital to get started, and it is easier to qualify for a residential mortgage than for a loan for commercial property. You will need an experienced team of professionals to analyze the financial and tax implications of commercial property. Not only will the property itself need to be thoroughly researched, but also the lease terms with each tenant, business contracts, business licenses and other factors that may not be part of residential real estate investing transactions.

Another potential advantage to residential real estate investing is that, generally speaking, residential property is often easier to rent than commercial property and can also be lived in by the investor. The advantage to commercial real estate is that most commercial property has multiple tenants, offering multiple income streams which helps reduce the risk if tenants default on their rent. For single home residences, if the tenant defaults on their rent the investor has no income coming in on the property to meet expenses. Also, commercial property leases are generally for longer time periods and this also helps to stabilize income. So while residential properties may be easier to rent out and manage in some ways, commercial properties can be more profitable and offer the potential for more stable, diverse income streams.

Perhaps the greatest advantage of residential real estate investing for the beginner and part time real estate investor is that it is far less competitive than commercial real estate investing. Commercial real estate investing tends to be dominated by institutional investors and experienced real estate professionals with plenty of capital and lines of credit, expertise, and connections in the business and real estate communities. It can be difficult for a beginning real estate investor to break into this highly competitive and complex world.

If you are just getting started in real estate investing, the best approach may be to start small, either with residential real estate investing or investing in a small commercial buildings such as an 8 unit apartment building or small office complex. Gain experience with single family homes or small buildings first and continue with your real estate investing education. As you continue to build your real estate investing knowledge and skills, as well as gaining experience, you can consider investing in larger scale commercial properties. There are advatages and disadvantages to both residential real estate investing and commercial real estate investing. The key is finding what styles of real estate investing, as well as what types of properties, best suit your own strengths and weaknesses and help you meet your investment objectives and goals.