If you are new to investing in real estate, the possibilities may be intimidating. With options ranging from single family homes to office buildings, it’s hard to know where the best deal is located. As you begin searching for an investment property, the first step is to weigh the pros and cons of both commercial and residential properties.
Commercial and Residential Investment Property: The Pros and Cons
Before searching for the right location, you will benefit from taking a moment to examine the pluses and minuses of both types of investment property options.
Commercial
Commercial property can include retail buildings, office buildings, warehouses, industrial buildings, apartment buildings or mixed-use buildings.
Pros
1. Revenue-generating
With higher rental fees and more available square footage, commercial properties typically offer a higher earning capacity than residential ones.
2. Appreciation
As a commercial real estate building’s rent delivers you regular income, the property can continue to grow in value over time.
Cons
1. Bigger Investment
Since an office building can be quite large, investing in commercial real estate requires more money up front than most residential real estate.
2. Greater Time Commitment
From cleaning services to maintaining utilities, you will be responsible for tending to the needs of more tenants than if you purchased a residential property.
Residential
Residential real estate is defined as single-family homes and one-to-four-family rental residences.
Pros
1. Provides Positive Cash Flow
If you purchase a residential real estate property, it will give you the ability to draw regular income from tenants.
2. Easier to Sell
While the price of residential real estate may fluctuate, individual homes are often easier to sell than large commercial buildings. It’s also possible to gain a significant return on investment by fixing up a house before putting it on the market.
Cons
1. Offers Modest Income
With only room for a few tenants at a time, a residential property provides comparatively less income than a commercial property.
2. Risk of Depreciation
Since it’s difficult to forecast which way the real estate market will turn in Nassau County or Suffolk County, there is always the risk your property may decrease in value.
After determining which type of investment property you would like, you’ll be better prepared to scout prime locations in Long Island.
