• Residential properties cost less to purchase, and you have a lower holding period for returns. However, they tend to bring in lower rent. Conversely, commercial properties get a higher yield and returns. Also, their property values are more stable. However, they may require hiring a property manager, having more (or more complicated) leasing strategies, and require a more detail-oriented approach. • Residential properties need to be move-in and live-in ready and their size isn’t too critical. In contrast, commercial properties can be a warm or bare shell and they might need to be a certain size to make the property practical for potential leasers. Many people who own rental properties opt to set up their business as an LLC. This means that all properties are owned, bought, and sold through a business rather than through a person. Also, the property itself is considered a business, so when you sell the property, you sell the business. The main reason that many people choose to set up an LLC is that it provides protection from being sued on a personal level. However, this doesn’t stop the company from being sued. This means that any money you have in your personal bank accounts and any other personal assets would be safe, but any business bank accounts wouldn’t be. Keep in mind that insurance can also protect you — to a point. Rental property owners should always have a dwelling policy (also known as landlord insurance ). The policies vary, but if something happens, you could get either replacement cost or cash value. Some also include loss of rental income. However, insurance might not cover all costs, and it doesn’t keep lawsuits CONSIDERING AN LLC
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