DIFFERENCE BETWEEN RESIDENTIAL AND COMMERCIAL BUILDINGS

Real estate investors have the opportunity to invest in land through land banking or gain profit through rental income. Although land banking is a lucrative investment opportunity, rental income is a tested strategy that enables property owners to consistently earn enormous profits.

 Rental income can be gotten by either investing in residential or commercial buildings. A good knowledge of both can give better insights to equip you in your investment journey.

This article will explain what commercial and residential buildings are, their different types, and the benefits and risks involved in investing in these buildings.

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REAL ESTATE 

Before we dive into the comparison between residential and commercial buildings, we must first cover what real estate is and the type of buildings available for you as a real estate investor.

What is Real Estate?

Real estate is any property that is tied to land. Unlike some other properties such as your car, or a boat which are not exclusively tied down to land. Real estate properties could be a house, offices, or a church. 

Types of Real Estate

There are different types of real estate properties 

• Residential 
• Commercial 
• Industrial 
• Special use 

Residential Real Estate 

These are properties used for residential purposes. For example single-family homes and condos.

Commercial real estate 

These are properties used for business purposes. For example restaurants and shopping complexes.  

Industrial Real Estate 

These are properties used for anything concerned with the process of manufacturing, production, distribution, storage etc 

Special Use Real Estate 

These are properties used for any special purpose which can be as a school, library or park etc. 

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Read Also: WHY YOU NEED PROPERTY MANAGEMENT AND REAL ESTATE INVESTMENT!

DIFFERENCE BETWEEN RESIDENTIAL AND COMMERCIAL BUILDINGS IN REAL ESTATE

Now that we have covered the basics, that is, what is real estate and the different types, it is good that we take a deeper look into residential and commercial real estate buildings and flesh out their differences! 

WHAT IS A RESIDENTIAL BUILDING?

Just as the name implies residential buildings are constructed for residential purposes. They are designated as living areas. 

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TYPES OF RESIDENTIAL BUILDINGS

• Apartment buildings 
• Condominiums  
• Single-family and multi-family homes 
• Duplexes 

WHY SHOULD YOU INVEST IN RESIDENTIAL BUILDINGS 

• Residential buildings are typically easier to rent out 
• The process of financing residential properties is more straightforward than it is to finance commercial buildings
• Inflation does not affect your investigation rather, as the cost of living increases hence, property value also increases which means more rental income.
• You could also benefit from a residential investment by living in an available unit 

CONS OF INVESTING IN RESIDENTIAL BUILDINGS 

• Residential buildings typically require a lot of management and upkeep  
• If you own a single-unit apartment, losing your tenant means you’ve lost your only  source of rental income
• Investing in residential buildings means you’re to be available 24/7 to attend to issues that may come up with tenants.

WHAT IS A  COMMERCIAL BUILDING? 

A commercial building is any building constructed for commercial purposes that is, for buying and selling. Commercial buildings comprise non-residential buildings.

TYPES OF COMMERCIAL BUILDINGS

1. Shopping complexes 
2. Office spaces 
3. Hospitals
4. Hotels 
5. Restaurants 

WHY SHOULD YOU INVEST IN COMMERCIAL PROPERTIES 

• Commercial properties usually boast a higher return on your investment when compared to residential buildings 
• With commercial buildings, leases are for a longer period so you would not have to worry about finding tenants for extended periods of time
• Management of commercial buildings is less stressful than residential ones. Usually, the tenant is responsible for damages that may occur.

Despite the many benefits that can be gotten from investing in commercial buildings, there can be some disadvantages.

CONS OF INVESTING IN COMMERCIAL BUILDINGS

• The amount of capital required to invest in commercial buildings is significantly more than for residential buildings

• It may take a long time to lease a commercial building than it will to lease a residential building 
• Financing a commercial property can complex than a residential building 

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COMMERCIAL BUILDINGS VS RESIDENTIAL BUILDINGS: WHAT ARE THEIR DIFFERENCES?

1. Building Costs 

It is more costly to develop commercial buildings than it is to develop residential buildings. This could be attributed to overhead costs, materials, equipment used and labour. 

Usually, commercial buildings are funded by corporations, the government or sometimes wealthy investors. 

On the other hand, residential buildings can be funded privately or through bank and insurance loans.

2. Building Design 

You’ll often find that commercial buildings lack variation in design. That is, they tend to all look similar, especially considering workspaces with each room lacking much difference from the next. However, with residential buildings each house design can differ greatly from the next one according to the taste of the house owner or landlord.

3. Expertise 

Because of the complexity of commercial buildings, special equipment is usually employed in the completion of such buildings. 

Additionally, professionals with extensive knowledge of how to handle such equipment are required. 

Residential buildings may sometimes require heavy machinery depending on how extravagant the building is. However, most residential buildings such as bungalows, or single-family homes will not require such.

4. Building Timelines

Usually, commercial buildings tend to be completed at a very quick pace. Quick completion of the commercial building means the lesser cost of labour and reduced overhead costs. 

However, residential buildings usually have more flexibility with regard to timelines and also have fewer workers and as a result, they typically use longer time to complete projects. This is not always the case as large apartment blocks may have more workers and work may be completed quickly.

5. Permits and Licenses 

Commercial buildings tend to have stricter codes guiding its construction. These codes guide the different processes which include materials used, electricity, water, and design of the building.  

Professional commercial building constructors are usually more familiar with the codes guiding the construction of commercial buildings and are the best fit for the job. On the other hand, residential buildings have a much simpler process and codes guiding construction.

CONCLUSION 

Before you determine if you would like to invest in a residential or commercial building, it will be beneficial to take all the different factors involved into consideration. 

With a proper evaluation of the differences between commercial and residential buildings in addition to your available resources, and desired return on Investment, you will be able to determine whether you should invest in residential buildings or commercial buildings.

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