We previously discussed and defined the two subsets within real estate industries. It’s an essential first step in being able to identify and understand the industries. Now we want to tackle more of the specifics. In understanding the differences or eccentricities, it becomes easier to define which real estate ventures are right for you.
What is the difference between a residential and commercial real estate agent?
Commercial agents have an educational background in business or finance because the sector is more focused on making a profit rather than finding a dream home, as Mashvisor explains. They must understand the business of making money in commercial real estate, which includes factors like rent multipliers. Their primary job is to show their clients how a certain deal makes them money because many investors aren’t necessarily experts or even familiar with the commercial real estate market. It’s also important to consider the nuanced nature of commercial real estate. Agents have to be familiar with multiple property types or know someone who can educate them. Oftentimes, agents specialize in a specific type like resorts or retail. No matter the case, it requires a varied knowledge.
Residential agents, on the other hand, need licensing and training in real estate but not necessarily a business or finance degree. Their job focuses on finding the home their clients need and want, usually within a specified budget determined by financing.
Is commercial real estate a good investment?
Commercial real estate tends to deal with less competition due to the sometimes staggering prices and need for experience or expert assistance. That being said, it also tends to be much more profitable. Khary Reynolds identifies the limited competition, forced appreciation and access to more capital as the three main incentives for pursuing commercial as opposed to residential.
While residential properties are valued based on their comparables, commercial properties are valued based on their comparables and revenue. This means if the owner can find ways to increase the property’s revenue, they can drive up the value of their own building. It can be as simple as renting out parking spaces, subdividing offices, and renovating apartments in order to increase revenue. In doing so, you ultimately increase your profit and resale value. Because of this, business savvy investors find thrive in the commercial real estate sector. It’s just a matter of getting a little creative.