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Key Differences between Residential and Commercial Real Estate Investments

Posted on: August 4, 2015

There are some key differences between commercial and residential real estate investments that you should be aware of if you are interested in becoming an investor in either type of property. A Fort Lauderdale commercial real estate attorney can give you more details on some of these key differences and explain them to you further.

Mainly, commercial real estate is valued very differently than residential real estate. For example, the potential value of a commercial property is directly based on its square footage among other factors, while this is not the case with a residential property. Although many investors start off with residential real estate investments, commercial real estate offers a higher potential cash flow over time.

Commercial real estate investments can be less risky

Many commercial real estate investments in South Florida are not as risky as comparable residential investments. For example, a single family home offers just one cash flow, while a multiple tenant commercial building offers several cash flows.

If one tenant goes out of business, there are others who continue to provide an income from that property. This helps you manage your risk, but your costs to purchase a multiple tenant commercial property are usually significantly higher upfront.

Commercial real estate provides stable cash flow over time

Leases on commercial real estate are often much longer than traditional residential property leases. This makes them a great option for investors who are looking for a stable and steady source of income over time.

It can be easier to make predictions on long term cash flow with commercial real estate. Because of the fact that a particular business may do well in a specific location, the tenant is often willing to stay in one building for several years before moving.

Banks often require a higher down payment

Banks value commercial real estate differently. You will need to usually put down at least 25-30 percent when buying commercial real estate, which is a higher amount than what is required for many residential properties.

A commercial real estate attorney can help you find appropriate financing for the commercial real estate options that you are interested in and help negotiate the best rate possible with the bank. Your attorney can also give you advice on the commercial properties that will meet your requirements the best and some of the other key differences between residential and commercial real estate.

Mark Schecter is an experienced Fort Lauderdale commercial real estate attorney who can answer any questions you have about the differences between residential and commercial real estate or provide other consultation as needed. Call Schecter Law today at (954) 779-7009 to ask any questions that you may have.