Choosing Between Commercial and Residential Submarkets

When it comes to investing in real estate, there are two primary options: residential and commercial. While both submarkets offer potential for financial gain, each type of investment has its own set of pros and cons. Residential investments would involve purchasing a single-family home, multi-unit building or other type of building that is intended for use as a residence. As you may know, I am heavily invested in residential duplexes, triplexes, and fourplexes, and apartment complexes.  This kind of real estate can provide steady monthly rental cash flow plus appreciation in value over time. There are some potential cons with residential investments. They can also come with certain risks and expenses associated with the property maintenance and tenant management.

Investing in multi-unit residential properties can be a great way to increase your wealth and build long-term stability. It offers the potential for higher returns than other forms of investing and has the ability to generate passive income.

When investing in multi-unit residential properties, one of my first considerations is always the location of the property. I look around at what similar units are renting for and try to find a sweet spot in between super low income and super expensive rental units. 

Some of the other factors that can immediately disqualify a property for me are the condition of the building and its surrounding area. Some people want to buy a turnkey property (one that is fully rented and renovated with no room for improvement).  I always look for what I call a “value-add” which is a property that has obvious upgrades that could be done to allow me to increase the rents. Examples of value-adds include new carpet, paint, etc. to increase the unit’s aesthetics and allow me to charge tenants more in rent. 

Any new investor should understand how important it is to know all of the financial implications of investing in multi-unit residential properties, such as financing costs, taxes, insurance and maintenance fees. You should also consider if you will manage the property yourself or hire a professional management company. I prefer to go the management company route since it is affordable and helps me scale the business and focus on acquiring new deals instead of dealing with tenant issues. 

When done correctly, investing in multi-unit residential properties can be an excellent way to build wealth. It offers you greater control over your investments than other forms of real estate investing, and it has the potential to generate higher returns than other income sources such as stocks or bonds.

If you are considering investing in multi-unit residential properties, it is important to do your research and consult many experienced professionals who are already in the industry. Along with content on my YouTube and website, they can provide you with valuable advice and help you make informed decisions that will lead to long-term financial success.

On the other hand, commercial investments can also be great cash flow opportunities with options such as storage units (which I have found to be great investments), office buildings, retail centers or warehouses. Any type of commercial investment will usually require more capital up front than residential ones, but they often offer higher returns due to the greater scale of associated rental income. Additionally, with commercial properties you typically have fewer tenant-related issues because the tenants are usually businesses rather than individuals.

When deciding which type of real estate investment is best for you, it’s important to consider your financial goals and risk tolerance. Residential investments may be more appropriate for new investors and those who just want steady returns over a long period of time, while commercial investments may be better suited for those seeking larger profits in shorter timelines. It’s also worth noting that investing in both residential and commercial real estate can be a good strategy if you have the money to get started. By diversifying your portfolio across different types of real estate, you can potentially mitigate some of the risk that comes with investing in either one.

Regardless of what type of real estate investment you choose to pursue, it’s important to do your research and understand all associated risks before making a decision. Both residential and commercial real estate can be great ways to invest if you do it right. With careful planning and wise investments, you can maximize your potential returns and build a huge passive income.