admin We are all familiar with the term “single family” or “SFR” (which stands for “single family residence”). In the real estate investment world, we may hear the terms “residential real estate” or “commercial real estate” (CRE) get thrown around. We are going to explain these 2 terms in this blog post.
Residential Real Estate
Residential real estate includes the type of properties that we are most familiar with, SFR, but it also includes small multi-family units, like duplex, triplex, and fourplex. We can generalize them as “2 to 4 units” multi-family. So combining the SFR, which may include condo, apartment unit, single family attached… etc, a “residential real estate” means 1 to 4 unit on the same parcel.
There are certainly some benefits for investing in the Residential Real Estate space. For one, it is an area that most people are familiar with, so it seems less “intimidating” if a new investor starts there. There is also a bigger pool of opportunity because residential real estate is what people buy and sell anyways, whether it is intended for investment, or for own consumption. Due to its relatively higher liquidity status, it is also easier to obtain financing for residential real estate.
Commercial Real Estate
Commercial real estate is basically “5 or more units” in its simplest term; you can also think of it as “anything that does not fit the residential real estate criteria” is a commercial. This can be “smaller” multi-family like a 6-unit, or this can be “bigger” multi-family like a 50-unit apartment building with amenities.
There are good reasons to invest in commercial real estate. To us at DoorInvestor, the biggest reason ought to be “force appreciation.” In a nutshell, force appreciation is a very power strategy and it entails you getting a CRE, determining its reasonable market CAP rate, improve the operations efficiency by either increasing rent, reducing expenses, or both. By improving the bottom line (NOI), you now have just increased the appraised value of the CRE!
Another benefit of investing in CRE includes the ability to obtain a non-recourse loan, which means your personal credit is not tied to the loan and the only collateral is the investment property itself.
Real Estate Development
Once you get your income train steaming along with residential and commercial real estate, you can follow Rich Dad’s mindset on expanding your multiple streams of income. Stay with the real estate investment theme, the next possible stage can be to step into real estate development.
The topic of real estate development is out of scope for this blog post, but if you are interested to explore further, click this link and see if it fits your style.
