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The pros and cons of commercial real estate investing

On Behalf of | Jul 9, 2023 | Commercial Real Estate |

Real estate investing is one of the most effective ways for Michigan residents to increase their net worth. One of the most appealing aspects of real estate investing is its diversity, as every type of investment is different. For instance, commercial real estate investing comes with its own unique list of pros and cons.

Pro: potential earnings

The goal of any investment is to generate a positive return, and commercial real estate generally does that better than residential rental properties. Experts report that commercial real estate investments typically generate an annual return between 6% and 12%, which is significantly higher than the 4% generated by residential investments.

Con: time commitment

Residential real estate doesn’t require as much time as commercial real estate. Renting a single-family home typically requires you to deal with your tenants once or twice a month. Commercial real estate investing takes a lot of time since it typically involves multiple renters, more maintenance and other time-consuming details.

Pro: more diversity

Successful investors understand the importance of diversifying their portfolios. While there are multiple types of residential real estate investments, commercial real estate is a much more diverse option. Retail settings, restaurants, factories and apartment complexes represent only a fraction of the types of commercial real estate that you can choose from.

Con: greater barrier to entry

Commercial real estate requires a larger up-front investment than most residential properties. This makes it more difficult for new investors to jump into the world of commercial real estate investing. While the increased risk creates a higher potential reward, some investors simply can’t afford the higher cost of commercial real estate investing.