The difference between commercial real estate and residential real estate 
 

Residential real estate is real estate purchased for the intent of using as a primary or secondary (vacation) residence.  In contrast, commercial real estate is purchased with the intent of generating income.  Examples of commercial real estate properties include: multiple family dwellings, retail space, office buildings, warehouses & hotels and motels.  The investor derives income by leasing the space to a tenant which could range from families occupying multi-unit apartment buildings to large multi-national corporations leasing office space. 
 

Let’s review each category of commercial real estate.  Each of these products has its pros and cons.  Factors that impact these investments include location, physical characteristics of the property and pending demand for these types of investments.   
 

Generally speaking, investors feel most comfortable initially transitioning to a multi-family dwelling.  It is the most attainable commercial property as one can start with the acquisition of a duplex or triplex and from there build on their portfolios. 
 

It should be noted that properties with five or greater units are more difficult to finance.  The parameters lenders use for these units will be more stringent.  If the project is small in nature, often times the owner will “self manage” the property which will assist in further savings.  Larger size apartment buildings will typically require services of a property management firm. 
 

The other commercial categories (office, industrial & retail) will typically require a large initial cash layout because typically the purchase price is more substantial and banks require a larger downpayment for these properties.  Often times these properties also require professional management.  It is more difficult and complex to negotiate commercial business leases thus having professionals represent your interests is advisable.  This also largely removes the investor from the day-to-day management issues.  These investment vehicles have appeal particularly when there is a strong, long term tenant or where rents are currently below market values and there is considerable potential to increase rents. 
 

In recent years, I have witnessed a very strong demand for commercial properties.  Many of our clients have a principal residence and believe real estate is the safest means to accumulate long term wealth.  These folks may already have an investment property but are looking to expand their real estate portfolio.  What is commonly sought today is multi-family dwellings, retail space and strip plazas. 
 

It is important to have a trained commercial specialist represent your interests.  They can guide you through this sometimes complicated process which in many cases requires carefully worded offers and comprehensive financial analysis.  Additionally, a realtor can be a great resource for financing.  It is imperative to have good contacts in the commercial field.