Commercial real estate is designed to generate a profit, while a home is designed for you or a renter to live in. Larger residential properties that house five or more families are considered commercial real estate, while smaller properties are residential real estate even if you rent them out. Buying commercial real estate is far different than buying a home. Here are some key differences.

Start-Up Costs: Commercial real estate requires deep pockets, whether your own or an investor’s or lender’s. Banks are often more reluctant to make commercial real estate loans than home loans, as both the price and the risk are significantly higher. In addition, if you purchase a commercial building without existing tenants, you are on the hook for all of the costs during the often-lengthy period while you are searching for the right match. Residential investment properties typically cost much less, and are easier to match with tenants.

Contracts: A residential mortgage can be lengthy and confusing, but if you are not used to commercial purchase agreements, they can seem to be written in a different language. An attorney is recommended when signing any contract, but is absolutely essential when trying to navigate a commercial real estate contract.

Valuation: Valuing a home is reasonably simple, as you can look at the purchase prices (and rent costs, if you plant to rent it out) of similar homes nearby. Finding a comparable commercial property for comparisons can be difficult or impossible, since valuations depend on everything from the existing lease terms to the expected future desirability of the neighborhood.

Hands-on Responsibilities: In general, once you have an existing, long-term tenant, your hands-on involvement with a commercial property will be relatively minimal. Owning a commercial property typically means having an infrastructure in place to handle day to day tenant needs. However, managing that infrastructure can be complex.

With a residential property, you will either live it in yourself and take care of your own maintenance, put in the work to flip the property, or rent it out. If you rent it out, you must either handle tenant needs or hire a property management company. Regardless of which you choose, your hands-on responsibilities will likely be greater, but easier to manage.

If you are ready to move forward with a highly experienced and knowledgeable team that can handle all of your commercial real estate needs from a single point of contact, we invite you to contact Lee & Associates New Jersey today at (973) 337-1144. We look forward to developing a lasting professional relationship with you.