The real estate industry is one the most lucrative sectors today. Many factors determine the success of a real estate business. One of the primary determinants of success is the kind of real estate business that an investor decides to indulge. There are two main classes of real estate. These are commercial buildings and residential buildings. Understanding the difference between the two is crucial for an investor who intends to get into the building industry. The following are some of the differences between the two types of rentals:
Most states in the country have licensure and educational requirements that any real estate investor is required to fulfill. Only the states of Idaho, Maine, Maryland, Massachusetts and Vermont lack these licensing requirements. In almost all states, investors are not required to have licenses to operate commercial real estate. However, in most states, it is mandatory to have a permit to build and operate residential houses.
This is the primary difference between commercial and residential real estate. An investor who aspires to invest in commercial real estate should possess specific skills that are not necessary for the residential real estate. For instance, a commercial property owner is required to have adequate insurance and regulatory knowledge. This is not essential in residential real estate business.
In commercial property management, the property owner has to meet the different needs of his/her clients. This is because the clients run various businesses such as medical, retail, and restaurants within the building.
A commercial property owner is also required to have adequate risk management skills. This is because the different kind of businesses located in the commercial premises has different associated risks. Residential property owners, on the contrary, are required to manage only one type of a risk since all their clients use the houses for living alone.
Residential and commercial property owners also serve different kinds of clients. Commercial premises tenants use the rented spaces for conducting businesses. Residential houses tenants just live in the rentals. Therefore, commercial premises require more caution in management than residential houses. For example, an electric failure in a commercial building is going to have a tremendous negative impact on the businesses operating in the building. For residential premises, an electricity failure will only make the tenants disgruntled but will have little effect on the tenants’ daily activities.