Comparing Commercial and Residential Real Estate in a Post-Pandemic World
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
While some outlets are still in the doom and gloom cycle, we’re choosing to see the silver linings offered in a post-pandemic real estate world. Of course, we realize the issues still within this "new normal." Daycares closed during the worst of the pandemic, and demand for the remaining childcare facilities sent prices sky-high. Office vacancies due to remote workers becoming a massive trend are causing businesses to rethink leasing so much business space. Retail was completely shaken at its core, and things are very different now.
The nationwide eviction moratorium gave residential renters relief, while landlords suffered. Where was the bailout for them?
And yet, opportunities for investors exist. Shifting from residential to commercial real estate just makes sense.
It’s time to take a realistic look at commercial vs. residential real estate in the context of this "new normal."
Residential Real Estate Woes
The primary trouble with residential properties is that you have to deal with the business of everyday living. For you, real estate investing is a business. For your prospective tenant, this is about finding a safe place to live. The clash between business and survival is pretty apparent here. This imbalance doesn’t have to cause problems, it’s better to plan for the worst-case scenario.
During the height of the pandemic, people stopped paying their rent. Even if you planned for a reasonable amount of vacancy in your numbers, nobody planned for a global pandemic to crash real estate expectations.
While it’s true that landlords had PPP loan opportunities, there were multiple issues with the PPP loan program. The application system was flawed, funding was hit or miss, and it was hard to get the right information in order to participate.
Tapping into Commercial Real Estate
The truth about commercial vs residential real estate is that you have lots of options in terms of what commercial properties you invest in. You can purchase an old hotel and fix it up with funds from your local government, as this could qualify for incentives in your area. Or you can go with an 8 unit apartment complex to really get a taste for multi-family housing. Land designed for farming is often zoned commercial, something that a lot of people don’t think about.
If you’ve ever wanted to try your hand at a small-scale agricultural setup, you can do that by pursuing commercial real estate properties.
And the funding definitely is there. Think about it from the perspective of both state and local governments. When properties go vacant, this means that they aren’t generating income for the state or for the local area. If it’s just one or two properties, this is a nuisance issue. However, when whole blocks of a community sit dormant, this is a major issue that the local area wants to handle as soon as possible.
Local Government Incentives
Empty properties also give the area a bad reputation. People want to live, work, and play in active areas where they can shop, explore entertainment options, and connect with the business community at large.
So local governments absolutely have incentives to help you ease your way into the business community. The mistake that a lot of investors make is that they don’t take the time to research these issues. They also feel afraid to connect with local officials.
Don’t be scared to introduce yourself and talk openly about your commercial real estate goals. The right conversation can change everything.
Improving Your Local Prospects
There’s nothing wrong with still keeping an eye on the residential space. In fact, your local real estate contacts in residential can also help you springboard commercial projects. Why? Everyone likes a good deal, whether that’s in the residential space or the commercial one.
Get good at identifying what makes or breaks a deal, and spend more time studying great deals. Once you have a working list of opportunities, you can not only introduce yourself and get to know other investors, but you can also build a reputation for being able to find good deals. That’s the entire point of building your investment portfolio.
If you choose to build partnerships that turn into actual projects, it’s important to remember to still go back to the fundamentals. Written agreements are worth their weight in gold, and they spell out exactly what’s expected from both sides of the deal. You should also have a clear exit strategy for every deal.
Conflicts will happen, but managing conflict through proper communication is very valuable. Far too often, bad communication makes us think that the other side wants to hurt us. Real estate is all about collaboration, and when you communicate well, everyone wins in the long run.
Don’t Give Up on the Residential Space Completely
Let’s be honest: every area still needs single-family homes, duplexes, and small multi-family units. Residential real estate isn’t going anywhere, and we aren’t telling you to get rid of it. We just want you to begin looking at ways to expand your commercial portfolio.
If you have a house that you’re renting out, and things are working well, don’t feel like you have to throw out the proverbial baby with the bathwater. We’re just trying to give you as many options as possible; keep your own unique situation in mind as you read our advice on commercial vs residential real estate.
Use Tools and Assistance to Make Things Easier
As we just mentioned in the previous section, we’re not here to tell you to give up on the residential real estate game. However, we think a lot of investors are so scared of the idea of commercial properties that they never look at what the "other side" can really offer their portfolio-building opportunities. If the goal is to have a well-diversified portfolio of real estate properties, not adding commercial to the mix is a missed opportunity.
You don’t have to go solo in your quest to dip a toe into commercial real estate. You can read more about CRE on our website, you can connect to others in your local real estate market, and you can even contact us.
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