When it comes to real estate investing, you have two choices: residential and commercial real estate. While they have some similarities, they’re also distinct in many ways. In this article, we tackle what sets them apart so you can decide which property suits you the best.
What does “residential property management” mean?
As the name suggests, residential property management pertains to the management of properties that are used as residences. It can include tenant-occupied (i.e. rental properties or real estate investments) and owner-occupied properties, however, the former is more common.
Owner-occupied properties are managed by home property management companies. Homeowners typically hire their services when they don’t have the time to maintain their homes themselves, or when they’re constantly away from home. A common example is when a homeowner owns a property in the U.S. but has to live overseas for some time.
For rentals, the scope covers the rental process itself and the day-to-day duties involving repairs, maintenance, and more. Their main goal is to make sure the property makes money. Property managers also perform a wide range of tasks, such as marketing, collecting rent, screening applicants, making payments, etc. Rentals can come in the form of single-family homes, multi-family homes, condos, co-ops, and more.
What does “commercial property management” mean?
Commercial property management shares certain similarities with residential property management. But the main difference is that it deals with properties that are meant to be used for business purposes, such as offices, retail spaces, and more. It’s worth mentioning that commercial properties are more challenging to manage due to the scale of operations, but on the upside, the returns are often greater.
If you’re looking to rent out your South Florida property, make sure to partner with a local property management company that understands the market. Only local property managers will have the knowledge needed to properly manage your rental property.
What’s the difference between residential and commercial property management?
All landlords and landlords-to-be need to understand what sets residential and commercial property management apart. By doing so, you’ll be able to make sure you put your time and money into the property that suits you the best. Let’s compare residential and commercial property management:
Tenant payments
All tenants, whether in residential or commercial properties, will have to pay rent. But what they pay on top of rent isn’t always the same. For one, residential tenants have to cover the costs of bills (e.g. electricity and gas), but they don’t have to pay for other expenses such as property taxes. On the flip side, commercial tenants have more expenses on top of their base rent, as the burden to cover the “three nets” (property tax, common area maintenance, and insurance) is on them.
While we’re on the topic of payments, it’s important to note that there are three types of commercial leases:
- Triple Net: This is when the commercial tenant pays for all three nets.
- Modified Net: The tenant and the property owner split the maintenance costs, but only the tenant pays for property taxes and insurance.
- Gross Lease: Under this agreement, the landlord collects a predetermined amount from the commercial tenant that already covers all three nets. A commercial property management firm can also do this for them.
Maintenance
In residential property management, landlords need to be available 24/7 to deal with any issues that may arise. While they don’t have to be on-site, they do have to be available at all times. Since maintenance can be time-consuming, many landlords choose to partner with a property management company that can attend to these matters on their behalf.
On the contrary, commercial property owners have to be on-site to address maintenance-related matters. In some states, being on-site is required by law, but they can leave the commercial property once the work day is done.
Whether you choose to run a residential or commercial property, it’s important to use a portal or system where tenants can submit repair tickets, and where you can keep track of maintenance tasks, work orders, and more. This will give you an overview of your to-dos, and allow your tenants to keep track of their ticket’s status. Plus, when you provide tenants with a convenient way to communicate their concerns, you can reduce the turnover rate.
Tenant responsibility
Residential and commercial tenants have to sign a lease agreement that outlines what they’re supposed to do when it comes to care and maintenance. But among the two, commercial tenants are more likely to commit to their obligations. This is because it’s in their best interests to keep the property well-maintained – if their place doesn’t look its best, no one will want to do business with them. Simply put, appearances matter more to commercial tenants.
Not all residential tenants have the same incentive to care for their rental. Most tenants expect the property owner to take care of maintenance concerns and cover repair expenses.
Occupancy
Since there’s more demand for residential properties, they’re easier to rent out. Even if your property isn’t in a residential area, you can still make money by converting it into a vacation rental. The downside is that residential contracts tend to be shorter than commercial contracts, so you’ll have to deal with vacancies a lot. And since tenant turnover costs around three months’ worth of rent, this means you’ll have to spend more money every time a tenant leaves. To mitigate this, consider partnering with a home property management company that can find replacement tenants in no time.
Because commercial tenants tend to stay longer as their contracts span as long as ten years, commercial real estate is more stable. And due to the legalities, getting out of a commercial lease agreement is more complicated. In most cases, commercial tenants that terminate their contracts end up paying thousands of dollars in penalties.
Yield
You can generate greater returns with a commercial property, but bear in mind that the cost to purchase one will be substantially higher than a residential property. With that said, if you’re new to the investing world, you might want to start with residential real estate as it’s more attainable. The costs that come with residential real estate are also lower.
Find professional property management in South Florida
Whichever property you decide to purchase, you should always partner with the experts at Luxury Property Care. With the vast portfolio of commercial and residential real estate we’ve built over the years, our professionals can help you find success with all of your investments. Contact us today at (561) 944 – 2992 or complete our contact form for more information on our services.
