There are many ways to build wealth through real estate, and it’s important that you find a strategy that works for you. One of the first questions you might ask as you explore the world of real estate investing is: should I invest in residential or commercial real estate?
I have strong opinions about this topic and for good reason. I want real estate investing to be sustainable and accessible for investors, and I think that’s something that only residential real estate can provide. On this episode of Investing in Real Estate, I’m going to share a few main reasons why I think residential real estate comes out on top.
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Barrier to entry. For most investors, buying a single-family home or duplex is relatively attainable. Even though the housing market has been wild the last couple years, it’s not out of the question for people to buy homes right now. But commercial buildings are much more expensive and harder to come by.
Predictability. Early in 2020, I interviewed Ken McElroy and he explained that commercial retail buildings were suffering the most from the pandemic. With businesses cutting hours and closing down, there has been a struggle when it comes to collecting rent in commercial spaces. As far as residential real estate goes, it will always be an essential business. While some landlords have certainly struggled to collect rent in the residential space, there are many more programs and opportunities available to help in this situation. Plus, if you’re investing in the right markets, you should be able to avoid this issue for the most part. Historically speaking, residential real estate typically performs well in times of economic hardship.
Financing options. Commercial lending is an entirely different animal than getting a loan on a residential property. A commercial loan is usually harder to come by, harder to qualify for, and requires a larger down payment.
Scalability. Once you begin a buy and hold strategy with residential real estate properties, it’s typically pretty easy to grow that portfolio. I find that for most investors, getting over the hurdle of buying the first property is the hardest part… and from there, they’re off to the races! With commercial real estate, it is much harder to grow and scale.
Demand. Everyone needs a place to live, so there will always be a demand for homes to rent. Right now, there’s not as much demand for commercial properties. If you’re investing in the right markets, there is always going to be a need for housing.
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DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.
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