Comparing residential and commercial real estate is like comparing oranges and apples. Both are from the same genre, but the similarities end at that. Following are some general descriptions of the two kinds of real estate.
- Commercial real estate is business-oriented. It involves property that is leased, sold, or utilized to achieve a certain business objective. This kind of real estate has used an investment to achieve a return on the funds they’ve invested.
- Residential real estate revolves around a homeowner and their family’s needs and wants. The property is purchased for personal use, in most cases to provide a place for the family to live.
In the case of the commercial real estate, the selling process is based on return-on-investment calculations and numbers. The residential real estate isn’t as cut-and-dry since the purchase is a lot more emotional. A lot of buyers will decide based on the fact the house simply feels right to them, instead of basing their decision on an anticipated return on investment.
What Is Residential Real Estate?
Since residential real estate is focused primarily on personal use, a residential agent represents the sellers or buyers of a single family primary home. Within the business of residential real estate, agents engage in a few other specialties, such as:
- Selling a secondary home where people can get a “home-away-from-home”, where they can be free from the daily routine. The second home market is among the segments of the residential real estate which is growing the fastest. Over 21 percent of sales in 2004 were�for this kind of home, either for use by the purchaser or for investing.
- There has been a steady increase in holiday homes abroad and estate agents in Menorca or ‘inmobiliarias�en Menorca‘ have reported a surge in foreign property investment.
- Working for someone who builds new homes, often by serving as an on-site salesperson for the new home community. Agents in this role sell only the builder’s homes. If they need to sell a home that’s outside the community, another agent will usually handle the sale.
Representing investors who put money in real estate, trying to increase their wealth through ownership of duplexes, triplexes, fourplexes or simple homes. Small-scale multiplexes tend to be handled by residential agents instead of commercial ones, for two reasons:
- The purchaser will often live in a segment of the multiplex, making it both an investment property and a residence.
- Often, a purchaser will be able to buy up to a fourplex using a conventional mortgage.
It’s rare that a residential agent will represent a buyer or a seller of a multiplex with over four dwelling units. Purchasers of a larger complex have to qualify for a commercial real estate loan and make sure to secure it. This type of loan involves much more restrictive conditions, that include shorter amortization schedules, larger down payments or initial equity positions, and higher interest rates.
What Is Commercial Real Estate?
On the other hand, the commercial real estate is about investment or business use of real estate.
When dealing with the commercial real estate, it’s possible to sell, buy, syndicate, develop, option, invest or joint venture. It’s also possible to lease either as a lessor (the individual who owns the property for lease) or as a lessee (the individual who leases the property for their own use).
There are many different commercial real estate categories, including office, industrial, investments, apartments, offices, retail, and even raw-land leasing.
Usually, commercial real estate agents are familiar with a lot of commercial real estate areas. In most cases, however, they will specialize in a discipline, such as:
- Representing lessees or tenants by locating, selecting and negotiating space for client businesses.
- Representing lessors or business owners by looking out to lease out some building space with the best possible terms and highest possible price. Often a commercial agent will represent an owner or a build exclusively, to make sure the real estate is leased to capacity.
- Representing investors who are looking to buy and sell commercial properties by finding the opportunities which offer the lowest potential risk, the highest return on investment, and the best capitalization rate – which means the net operating income divided by the sales price of the property.