Commercial Real Estate
The Cons
Commercial Real Estate typically is more difficult to get into due to more stringent financing policies and terms. Typically 25% down is a common required amount and the investor must have a financial worth of or at least near the value of the investment. Good credit along with high debt coverage ratios, are typically required and potential isn’t given much thought from the underwriter’s standpoint. Depending on the uniqueness of the property under consideration, the appraisal may be difficult to get with a correct value assessment. Along with being more difficult for investors to get into, property management also gets more complicated as business structures and leases have to be negotiated rather just set. The last negative to commercial Real estate is that they are typically harder to fill upon vacancy, than residential, primarily because many structures were built for specific purposes with limited uses.
The Pros
While it may be a little more difficult to get into, in most cases the rewards are more valuable than the cost of the loops that the investor has to jump through. Lease structures in many cases are long term and while more complicated, they typically relieve the landlord of more work than residential management. Returns have to be higher to cover debt coverage ratios so overall rate of returns are generally in the investors best interest. Commercial properties historically average higher capitalization rates than does residential. Management fees in Commercial Real estate are typically much less than Residential, meaning that more of the cash flow actually stays in the investor’s pocket.
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 Residential Real Estate
The Cons
Most people know the cons of residential real estate investment, because there are 10 critics for every investor. Difficult tenant situations, high management fees, maintenance issues and more frequent vacancies all add up to create problems that can make investors want to steer clear of investment real estate for the rest of their lives.
The Pros
Residential real estate is fairly easy and cheap to get into. There are multiple methods to investing in residential real estate and sweat equity is fairly easy to create. Large tenant base to market to, easier to fill vacancies and won’t bankrupt you if you do have one. The owner has control over what they want to offer as amenities that can bump cash flows and create a higher value for the property too. Overall, if a person is just looking at getting into real estate investment and doesn’t have a lot of money, residential is typically the place for them to start. Good returns can be found in residential real estate, but guidance from an investment professional is recommended, especially on your first investment. Know what types of problems to expect with each type of property.
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