LOOKS CAN BE DECEIVING, THE DIFFERENCE BETWEEN COMMERCIAL AND RESIDENTIAL REAL ESTATE
Just like how some fruits are mistaken as a vegetables, residential and commercial real estate have their own nuances that set them apart from one another.
Commercial Real Estate can be most basically defined as a property that produces income and are commonly divided into five(5) types,
- Office Buildings – includes single-tenant properties, small professional office buildings, downtown skyscrapers, and everything in between
- Retail/Restaurant – includes single tenant retail buildings, small neighborhood shopping centers, larger centers with grocery store anchor tenants, “power centers” with large anchor stores such as Best Buy, PetSmart, OfficeMax, and outlet malls.
- Multifamily – Includes anything larger than a fourplex,
- Land – Undeveloped, raw, rural land in the path of future development.
- Miscellaneous – Includes anything not listed above like hotels, hospitality, medical, and self-storage developments,
Residential Real Estate can most basically be described as real estate meant to be used as a primary residence, or small investment property,
- Single Family residence
- Attached single family residence, like a townhouse or a row house,
- A Multifamily property up to four units.
A one to four unit multifamily property is considered a residential property even if the landlord derives income from the property per FannieMae and FreddieMac guidelines, so it’s understandable if that’s confusing.
Understanding these differences is critical to building your real estate portfolio. A mix of properties diversifies your market risk and can help you to maximize your leverage and income. Working with a trusted realtor and loan officer will help you determine the best investments for your risk tolerance and growth strategy