Trying to liken commercial real estate to residential real estate is equivalent to seeing how apples are the same as oranges: sure, they are from the same category, but that’s it. To describe in general what commercial and residential real estate are:
- Commercial real estate is more inclined towards business. Properties in the commercial real estate industry are put up for sale or rented out for corporate purposes. In most cases, it’s a form of investment that helps a person reach their rate of return on the amount of money they put up as investment.
- When a property is used to solve the wants and needs of a homeowner and his loved ones, that’s residential real estate. It’s a property that a person buys for personal use or to provides shelter to a family.
Sales for a commercial property rely heavily on calculated numbers and ROI (return-on-investment). Buying a residential property, on the other hand, is an emotional decision. When purchasing a house, buyers make the decision simply because it feels like the right thing to do. The ROI is a crucial element.
The basics of residential real estate
A residential property is mainly bought for an individual’s own needs. In the general sense, a residential real estate agent represents the seller or buyer of single-family, primary properties. In the residential real estate field, the following are also some of the specialties of an agent:
- Attending to buyers who are looking to purchase a property for vacation purposes (a home away from home) – One of the fastest-growing markets in real estate is the second home segment. In fact, over 21% of 2004 real estate sales were made by those who wanted a property for the sole purpose of investing in it.
- Representing a new development builder as the on-site salesperson – In taking on this job, the agent acts as the seller of the builder’s property. If a buyer were to sell a home that isn’t part of the builder’s community, he will be represented by another agent.
- As a representative of a property investor who wants to capitalize in being the owner of a real estate like a house, a duplex, or a multiplex. In the case of a small-scale multiplex, a residential real estate agent handles the job instead of a commercial agent because:
- Usually, the buyer will reside in one property within the multiplex, thereby creating both a home and a real estate investment.
- In many cases, a buyer can purchase up to a fourplex using a conventional mortgage
If a multiplex has more than four units, it’s usually no longer a residential agent’s job to help them. The purchase of a large complex requires the use of a secure commercial real estate loan, the qualification of which is a lot more restrictive. This kind of loan also has shorter amortization periods, higher interest rates, and higher down payments or initial equity positions.
The basics of commercial real estate
The commercial real estate business is focused on the investment potential of a property.
When you’re in commercial real estate, these are some of the things you can do: buy, sell, lease as the lessor (the owner of the property for leas), lease as the lessee (the one who wants to lease the property), syndicate, joint venture, develop, option, and invest. Some of the properties you can invest in are retail, office, industrial space, apartments, and raw land.
Real estate agents in the commercial side of the business are normally adept at a lot of the commercial property subjects, but these are their main specialties:
- Being the representative of the lessee or tenant by searching for, choosing, and discussing a new property for business.
- Being the representative of building owners by leasing out building space for the most money and with the best terms. To make sure that the entire building is leased to capacity, some agents represent the owner or the whole building by himself.
- Being the representative of someone who wants to get into the commercial buy and sell business by finding properties that have the lowest risk and the best ROI. It’s also important that the property have a great capitalization rate, which you get by dividing the property’s net operating income by the sales price or the property’s value.
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