How to Balance Commercial and Residential Real Estate (And Make a Profit from Both)

In the realm of real estate, the choice between commercial and residential properties often feels like a binary decision.

It’s either commercial properties, or investment properties, but not both… right?

Can you do both commercial and residential real estate?

Can you successfully navigate the complexities of both commercial and residential real estate markets? The simple answer is yes!

What is the Difference Between Residential and Commercial Real Estate?

To excel in both sectors, it's important to understand the nuances that set them apart.

Residential real estate is primarily living spaces, including single-family houses, apartments, condos, townhouses, and other dwellings. They’re typically known as a more stable investment but with a potentially low return.

Commercial leases are usually longer and more complex than residential leases.

Commercial tenants often have specific needs, like ample parking or high foot traffic, that differ from what residential tenants seek. Commercial properties are also valued based on their income potential, whereas residential properties are often valued based on comparable sales in the area.

Understanding Commercial and Residential Real Estate

What is Commercial Real Estate?

Commercial real estate refers to properties that are used for business purposes rather than for residential living. These properties are typically leased out to businesses and include office buildings, retail stores, warehouses, and industrial facilities.

Commercial real estate is used by businesses to operate their activities, such as offices for administrative work, retail stores for selling goods, warehouses for storing inventory, and industrial facilities for manufacturing goods.

Think of shopping malls, retail stores, restaurants, and entertainment venues, all of which are leased out to businesses.

What is Residential Real Estate?

Residential real estate, on the other hand, refers to properties that are designed for people to live in. These properties include single-family homes, apartments, condominiums, and townhouses.

Think of a simple suburban neighbourhood!

Key Differences

The key differences between commercial and residential properties lie in their usage, leasing structure, and valuation methods.

• Usage: Commercial properties are used for business purposes, while residential properties are used as living spaces.

• Leasing Structure: Commercial leases are typically longer and more complex than residential leases due to the needs of businesses and the nature of commercial activities.

• Valuation Methods: Commercial properties are valued based on their income potential, often using metrics like capitalization rates. In contrast, residential properties are often valued based on comparable sales in the area.

Understanding these differences is crucial for anyone looking to navigate both commercial and residential real estate markets effectively.

Can You Do Commercial and Residential Real Estate?

The idea of working in both commercial and residential real estate is enticing for many reasons. It offers the opportunity to diversify your portfolio, expand your client base, and potentially increase your income.

So can you do commercial and residential real estate? It’s very possible, but comes with challenges that need to be carefully considered.

• Diversification: Working in both sectors allows you to diversify your portfolio, reducing the risk associated with fluctuations in either market. For example, if the residential market is slow, you may still have income coming in from your commercial properties.

• Expanded Client Base: By working in both commercial and residential real estate, you can attract a wider range of clients. This can lead to more business opportunities and a stronger network within the industry.

• Income Potential: Both commercial and residential real estate offer the potential for significant income. By working in both sectors, you can tap into different sources of revenue and potentially increase your overall income.

The Pros and Cons of Doing Commercial and Residential Real Estate

Pros

• You’re diversifying. Many talk about the importance of spreading investments across different sectors. When you dip your toes in both resident and commercial real estate, you’re diversifying your real estate portfolio.

• It has a high-income potential. Of course, great opportunities are earned from both rental income and property appreciation.

Cons

• It’s complex. Managing both types of properties can be complex and requires a deep understanding of the unique challenges of each sector.

• It’s resource-intensive. Balancing the demands of both commercial and residential properties can be resource-intensive and require a dedicated team.

• You’ll need to have market knowledge. Staying informed about trends and market conditions in both sectors can be challenging.

• You’ll need to know zoning laws. Understanding zoning laws for both commercial and residential properties is crucial to ensure compliance and avoid potential legal issues.

Frequently Asked Questions

Are apartments residential or commercial?

Apartments are considered residential properties because they are used as living spaces for individuals or families.

Can you use commercial property as residential?

In some cases, it is possible to use commercial property as residential, but this may require zoning changes or special permits. It depends on the specific regulations and zoning laws in the area.

Can a property be zoned commercial and residential?

Yes, some properties can be zoned for both commercial and residential use. This is often seen in mixed-use developments where there are both residential units and commercial spaces in the same building or area.

Do I need separate licenses or qualifications for commercial and residential real estate?

In most places, you will need separate licenses or qualifications to work in commercial and residential real estate. The requirements vary depending on the location and the type of real estate activities you plan to engage in.

Do I need different skills and knowledge for commercial and residential real estate?

Yes, commercial and residential real estate require different skills and knowledge.

Commercial real estate often involves understanding things like leasing agreements, zoning laws, and market trends, while residential real estate may focus more on home sales, property management, and customer service.

How can I get started if I’m switching from residential to commercial real estate?

It’s always good to have a team of advisors by your side, especially if you’re jumping into something new.

At CRE Professionals, we offer commercial real estate advising in the Toronto area in industrial, investment, office, and land/design-build property. We’ll help you find, manage and grow your commercial real estate portfolio so you can enjoy the benefits that real estate can bring.

Get started today!