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What is the difference between commercial and residential real estate?

Apr , 28
What is the difference between commercial and residential real estate?

Real estate is one of the most reliable forms of investment today. The real estate sector is divided into two categories, residential and commercial property.

There is of course a huge difference between investing in commercial real estate and residential real estate. Both of these investments involve a huge amount of capital risks.

Investment decisions are not made overnight and it takes time to decide whether to invest in commercial or residential real estate. The advantages and disadvantages, the pros and cons are to be thoroughly assessed and analyzed before making an investment.

Let us try to understand in detail the major difference between commercial and residential real estate.

What is the major difference between commercial and residential real estate?

The major difference is that residential real estate consists of single and family type buildings while commercial real estate consists of properties lent to run a business. Residential real estate consists of flats, duplexes, apartments etc. While commercial real estate consists of hotels, godowns, startups etc.

Both these types of real estate have their own set of opportunities and challenges. For instance, commercial real estate investments promise good returns on investment (ROI) whereby residential investment consists of complications and risks.

Let us now try to understand residential real estate and its benefits.

What is Residential Real Estate and What are its benefits?

Residential real estate is that which is for personal use and not for commercial use.

Major Benefits of investing in residential homes:

Low cost of entry: Residential real estate has a very low cost of entry. For beginner real estate property investors, residential real estate investment is a good option to try out.

Reduced tenant turnover: For residential properties, tenants look for long term contracts and it takes time to find the right tenant. If you are able to find tenants who wish to stay in your property for the long term, you can be sure that they will take good care of the property.

Lenient laws: Residential laws are lenient and hassle-free as compared to commercial property laws.

What is Commercial Real Estate and What are its benefits?

 Commercial real estate deals with properties that are run for their daily business operations.

 Major benefits of investing in commercial properties:

 Higher ROI: Big stakes give great ROI. Commercial real estate gives you higher ROI as compared to residential real estate. When your property is located at a prime location, businesses would pay a hefty price to own or rent a property at that particular location because of good connectivity and infrastructure.

 Qualified tenants: As the tenants of commercial real estate are business owners, they tend to take care of the property very particularly. Unlike residential real estate tenants, they keep the property immaculate.

 Triple net lease: A triple net lease is a real estate lease agreement where the tenant is made accountable for the complete monthly expenses of the property including taxes, maintenance cost, insurance, apart from rent and utilities.

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