Investing in real estate is a great way to generate money through rental income and property appreciation. That said, there are several different investment strategies to explore, whether you go after residential rental properties, commercial buildings, short-term rentals, or a fix-and-flip project. With that, each strategy required a different type of management and maintenance. Today, we’re reviewing commercial vs. residential property management and what you need to know if you’re looking into either of these investment types.
Contents of This Article:
Contents of This Article: - What Is a Commercial Rental Property?
- What Is a Residential Rental Property?
- Commercial vs. Residential Property Management
- Which Investment Type Is Best for You?
- Choose BMG for Your Management Needs
What Is a Commercial Rental Property?
Before we can discuss how commercial vs. residential property management works, it’s important to understand each property type. As Baltimore rental property management professionals, we know that each property type has different structures, laws, and regulations regarding management.
A commercial rental property is real estate leased to businesses or organizations for commercial use. These buildings can be office buildings, retail spaces, warehouses, or industrial facilities. Typically, they’re leased out to companies rather than individuals and used for business activities, sales, or services.
Commercial rental properties usually have longer lease agreements, higher rental yields, and more significant appreciation. However, buying a commercial building is much more expensive than buying a residential property and requires more complex management.
What Is a Residential Rental Property?
A residential rental property is leased to individuals or families as a place to live. These properties include single-family homes, small apartments, condos, or townhomes. Residential leases are more short-term than commercial leases, usually 12 months.
Residential properties are more accessible and typically easier to finance and manage than commercial properties. However, property owners experience higher tenant turnover rates and may have smaller rental yields compared to commercial investments.
Commercial vs. Residential Property Management
Since the property types are so different, it only makes sense that managing them is completely different, too. If you’re looking at various investment types and want to know more about commercial vs. residential property management, here are some of the main differences.
Types of Tenants
- Commercial: Commercial properties are generally used for business. As such, tenants in these buildings use their areas for office spaces, retail stores, or industrial purposes.
- Residential: Tenants in residential properties are generally individuals or families renting a home, apartment, or condo.
Lease Terms
Lease Terms- Commercial: Commercial leases are typically longer, ranging from 3 to 10 years. They may also include clauses like triple net, where tenants pay property expenses like taxes, insurance, and maintenance. However, there are options for single net, where the tenant pays rent and property taxes, and the landlord pays the rest, or double net, where the tenant pays property taxes, insurance, and rent, and the landlord takes care of maintenance.
- Residential: Residential property leases are shorter. Depending on whether it’s a short-term rental or long-term rental, leases generally range from month-to-month to one year. Lease terms for residential properties are usually more straightforward, focusing on rent, utilities, and landlord-tenant rights and responsibilities.
Rental Demand
- Commercial: The demand for commercial properties varies depending on several factors, such as the property type, economic conditions, and location. For instance, businesses expand when the economy is strong, leading to higher demand for business spaces.
- Residential: Everyone needs a place to live. As such, the demand for residential properties is generally much higher than it is for commercial spaces.
Maintenance Tasks
- Commercial: Depending on the nature of the lease, maintenance tasks for commercial properties vary. For instance, tenants usually share responsibility for repairs, especially under triple net leases. In turn, property managers focus more on maintaining common areas and ensuring that the building meets legal regulations.
- Residential: Property managers generally handle all maintenance and repairs for residential rental properties. They’re also responsible for ensuring the property is safe and habitable, which is often legally required per various housing laws.
Regulations
- Commercial: Commercial properties often have stricter zoning laws, building codes, and safety and accessibility standards compared to residential properties.
- Residential: Residential rental properties have stricter regulations regarding tenant rights, habitability, and safety. For instance, certain local, state, and federal laws may regulate security deposit amounts, habitability standards, rent increases, and eviction procedures. Additionally, landlords and property managers must comply with Fair Housing laws to avoid housing discrimination.
Turnover and Vacancy Rates
- Commercial: Turnover rates for commercial properties are usually lower as lease agreements are longer. That said, vacancies can be more detrimental, as these buildings are costly to own and may take a while to occupy due to the specific needs of business tenants.
- Residential: Residential rental properties experience higher turnover rates, as leases are shorter and new tenants are coming in and out. However, vacancies may be easier to fill than for commercial properties due to consistent housing demand.
Which Investment Type Is Best for You?
Which Investment Type Is Best for You?Whether you’re an experienced investor or looking to buy your first rental property, it’s important to evaluate the differences between commercial vs. residential property management.
If you’re looking for a more hands-off experience and want to deal with businesses rather than individuals or families, a commercial investment may be better for you. However, know that it may take time to find businesses to lease your space, and you’ll want to pay careful attention to the regulations that apply to your building.
On the other hand, if you want more flexibility in your investment and a more hands-on management approach, you may benefit more from a residential rental property. However, remember that you may experience higher tenant turnover rates and potentially lower rental yields until you find consistent tenants.
Choose BMG for Your Management Needs
Knowing what to expect with commercial vs. residential property management can help you make the best investment decision for you. After all, each property type has different budget considerations, tenant types, and management needs. So, you’ll want to be well-equipped for whatever rental property you buy.
Need More Advice? contact us today!
If you need help managing your residential or multi-family rental property, consider enlisting the help of Bay Property Management Group! We provide full-service management to rental owners throughout Baltimore, Philadelphia, Northern Virginia, and Washington, DC. Contact us today to learn more about how we can help your business succeed!
