"The commercial real estate is business-focused real estate which involves property that is sold, leased or used to achieve a predetermined business objective. Commercial real estate is used as an investment to gain an anticipated rate of return on the funds invested. Whereas, residential real estate involves the needs and wants of a homeowner and his family. The property is purchased for individual use and most often to provide housing families, but how can we compare these in terms of investments?" via Reddit.
- Commercial leases range from 5 to 15 year terms. Residential leases are typically 1 year terms. Residential properties are flipped within 6-18 months. Commercial properties are stabilized and re-sold in 5-10 years.
- Financing for residential investments ranges from 75-90% LTV. Financing for commercial investments ranges from 60-80% LTV. 1-4 family homes qualify for 30 year mortgages. Commercial loans are never 30 year terms, they're usually 5-10 year terms amortized over 25-30 years.
- Tenants in your commercial properties are normally responsible for things that a owner would be for residential. If the HVAC breaks in a commercial property - the tenant gets it fixed. If it breaks in a residential, tenant will call you to get it fixed.
Please chime in with other differences between commercial and residential investing. This topic is to help prospective investors transition into commercial real estate.