Investing in real estate has been a traditional method to invest funds for long term benefits. But choosing between commercial vs residential real estate is a tough choice. If you are keen to invest in commercial real estate in Corpus Christi, this blog is for you.
Here, we have talked about different factors cash flow, liquid capital, risk tolerance, etc. regarding real estate investment to help you make an informed decision.
Commercial Vs Residential Real Estate: Things to Remember
Apparently, there seem to be no differences between commercial and residential real estate apart from the fact that commercial real estate pertains to commercial properties like factories, shops, hotels, etc. whereas residential real estate relates to residential properties that are usually leased to individual families to live. But on a closer look, there are far more differences between the two.
The lease term for commercial projects is more than residential projects. For example, a residential property lease term can be one year while lease term for a commercial property can be anywhere between three and ten years. Commercial property buyers prefer long term lease because the turnover cost is lower, you can expect more cash flow with a lower vacancy rate.
The credit scores are stringent for commercial real estate as compared to residential real estate because the associated risk is more in commercial real estate. You can expect to face a higher interest rate for commercial real estate if your credit score is below 740. On the other hand, for residential real estate, you can expect to receive a loan with a much lower credit score.
Go local for loans for commercial real estate:
If you are investing in commercial real estate for the first time, opt for a local bank to go for loans. This will help to strengthen your case because local banks usually have a strong interest in promoting the local economy. Also, you can expect to have easy processing of your loan application as compared to larger banks.
When commercial properties are compared with residential properties in terms of the vacancy rate, residential properties have a lower vacancy rate as compared to their commercial counterparts. That’s because, with the increasing population, residential rental demands are an all-time high. Additionally, the millennials prefer to live in residential rentals for a longer period before they decide to invest in residential real estate. On the other hand, finding a tenant for the commercial properties may take as long as six months because there is a tough competition with the e-commerce giants like Walmart. Many of the shopping complexes are closing down and finding talent can be a big challenge in such a scenario.
Impact of the economic downturn:
Retailers and businesses are always at a higher risk to the economic downturn. A business can close down for many other reasons too. So, even if you are having a long-term lease with your tenant for your commercial real estate, your tenant can be out of business any time. On the other hand, the demand for residential properties will always be there because people will always need a place to stay. So even in times of the bad economy, you may get a lower rate but demand would not die and hence you will always have a passive source of income from your residential property investment.
Ease of investing:
Residential real estate is far easier to understand and hence you might feel comfortable investing in it especially if you are investing for the first time. On the other hand, real estate investment is complex, involves high risk, and a lot of paperwork to process. It can be an overwhelming experience if you are doing the transaction for the first time. If you are planning to invest in commercial real estate in Corpus Christi we strongly advise you to do your due diligence and research before you plunge in it.
Cobb, Lundquist & Atnip, Inc with over 77 years of real estate experience has been helping esteemed clients with their investments in real estate. We have an adept knowledge about the market, we have a large local network, and our integrity is uncompromisable. Planning for buying commercial property for investment? Get in touch with us today.