COMMERCIAL VERS AL VERSUS RESIDENTIAL PROPERTIES
A general rule of thumb (which can vary by state) is that a building with four units is residential, while a building with five or more units is considered commercial. Each type of property will be subject to different laws and taxes. Regardless of which type of property you use, you’ll still need to consider all the factors above. That said, there are differences to consider when choosing between commercial and residential properties. • Residential properties are usually rented for a year (no more than three), whereas commercial properties tend to have longer leases (up to nine years), meaning less turnover and therefore less risk of vacancy. While profits can be higher in single-family homes, it’s an eggs-in-one- basket situation, and vacancies can be especially detrimental. If a renter vacates, the place must be cleaned up and fixed, as necessary, then the owner needs to find new renters. This process can sometimes take two or three months, which might be equal to the amount of profit the owner could’ve made in two years, had the property been continually rented.
• Commercial properties often come with higher expectations. Owners need to be extremely
knowledgeable about what’s required for these types of properties and how to handle things if, for example, a large multi-unit apartment building becomes infested with bed bugs (which, by the way, is a class-action suit waiting to happen).
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