A common definition of a commercial property is “any piece of real estate that is larger then one house on one lot.” Therefore commercial real estate includes everything from tiny 2 unit apartments to large shopping centers and even the development of land. Here are the 2 biggest differences between residential real estate and commercial real estate.
1. Commercial properties can be passive investments only once they are off the ground and running smoothly. Unless you have massive amounts of money and do not care about getting huge returns, commercial real estate will eat up both your time and money. When you enter commercial real estate investing you will have to deal with the learning curve, finding a good mentor or coach, finding financing, overseeing the project, hiring a good law staff and finally finding the right property to purchase in the first place. The good news is once you have your property up and running, then they normally makes enough money for you to sit back and pay others to manage it.
2. Investing in commercial properties has the ability to make you wealthy with the completion of just one deal. By completing one commercial deal in the correct manner you can profit with a healthy chunk of cash that might be worth several times your yearly salary as well as adding a decent monthly income to your current income. Residential property does have the potential to build wealth, but it does not have nearly the cash flow potential of commercial investments.
What it comes down to is how a person thinks. If you want to live big then you need to think big. Don’t think about how you can start small with a small house on a small lot and earn a small cash flow. Rather think about how big you can go while still managing the risks in an appropriate manner. You may not have the ability to purchase a skyscraper in your first deal, instead try setting your sights on a decent sized strip mall. Instead of a $1,200 a month check from your renter of the single family home, think about the $50,000 a month worth of checks you could receive from your strip mall. Think big and the profits you receive could potentially be enormous.