Gambling In Real Estate? Residential Properties A Safer Bet

Like most writers, when I first thought about this topic, it was going to head in a certain direction. However, after finding the following article on the Internet, I decided to change the course of this piece to reiterate and discuss further whether to invest in residential or commercial properties.The article I found was written by Frank Gallinelli, and it can be read in full by going to the website article below. In the article, Frank talks about his thoughts on purchasing property as investments, be they residential or commercial. He also provides a short list of Pros and Cons to argue each side.To supplement on the topic, being that I have worked in the property management field of both commercial and residential investments, I agree with what Frank has to say, but further summarize residential and commercial properties by one word: Gambling. With residential properties, the gambling risk is low and steady. Frank mentions that the “pool of potential tenants tends to be large”, meaning that there may only be small hiccups between tenants when rent may not be coming in, but besides those times it is pretty constant. With commercial properties, the gambling risk for a continued income is high. Yes, the income can be a more significant amount, however with a higher rent comes the increased chance that the tenant cannot continue to pay their rent for the duration of a five-year lease if business is bad.

In my experience, I have seen commercial tenants who continually rack up rent charges, and try to make deals with the owner to pay smaller rent amounts and have him write off an outstanding balance for “good behavior”. I have also witnessed, as Frank writes, tenants close their business doors one day and leave “in the middle of the night”. It is not uncommon in this economy for even a small commercial space to sit vacant for a year or longer.

Property management companies that deal with both commercial and residential properties are relying these days on their residential portfolio to get them through the tough times. Management fees of commercial properties are low, and residential rents are the steady source of income. The brokers of those “dual” companies are devoting their time hitting the pavement searching for commercial tenants to not only increase their business, but hopefully get extra income from the commission when a new lease is signed.

To finalize this piece, I will end with saying that in this economy, residential properties as investments are coming out ahead. Commercial properties are for those willing to handle high risk and high vacancies. Everyone needs a place to live; not everyone needs a commercial space to run a business. Keep in mind that, as Frank states, “Residential properties usually require a lot of hands-on management”, but rest assured that Real Property Management Select is here to take care of your investment property.
Investing in Real Estate: Should You Buy Residential or Commercial Property?