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A Guide to Residential vs. Commercial Real Estate in South Florida

Kara Yaquinta
By Kara Yaquinta - July 11, 2020

South Florida could easily be one of the top places in the United States when it comes to real estate. From all the cranes hanging out in Downtown Miami and Fort Lauderdale, shopping plazas popping up on every other block or the look of a house that has just been flipped it seems there’s an investment opportunity anywhere you go. However, if you’re someone that’s considering a real estate investment opportunity it’s very important to be educated and make a right decision as these may be one of the most expensive transactions you make. To help guide you to that right decision, here’s what you need to know about residential and commercial real estate investment opportunities in South Florida.

commercial real estate buildings in miami

Residential Real Estate

Residential real estate opportunities usually take the form of purchasing a single family home, townhome, condo, apartment of duplex type of structure. In South Florida specifically, investors will purchase these types of properties and often rent them out or flip them, thus making a profit. Often times people will refer to these as “investment properties” and normally these will take the form of a second mortgage if you already own a property. If you’re looking into this type of investment property here’s a couple helpful things to know:

Consider Costs

When looking and comparing real estate investment opportunities, generally the “least expensive” investments are residential properties. Depending on the property this may be true, however there’s a few things to beware of when it comes to costs of a residential real estate investment.

If you’re planning on renting the property out, there’s certain rules and regulations required by the lender, sometimes that’s in the form of how much of a down payment is put down. It’s recommended to gather all the facts before deciding on a specific type of property and loan when it comes to this type of investment. If you’re looking to flip a property of course the costs associated with that would be how much it would take to get the property and flip it compared to how much the property would be worth at the end.

There’s so many granular costs that come with an investment like this that we recommend not basing a decision off of the initial price tag as the investment costs may not end there.

Location is Critical

This is very simple. People will pay more to be in a certain location compared to another regardless of the condition of a property, but will pay even more if the condition of the property meets the location as well. This is especially true in South Florida. However, it’s important to consider your options and do your research when it comes to residential investment properties. For example, just because the property is located in the heart of Brickell, will it make as much money overall as something that’s up to date and sits beside a mall in Boca? Comparing these types of things and forecasting the value of location and property is extremely important especially if this is an investment you plan to keep.

Portfolio is Everything

The honest truth to making money on residential real estate is that the real money is made either through flipping a home or having multiple properties in a portfolio. Here’s why: if you don’t put a large amount towards the loan and the payment costs you, say, $2,000 a month and the most you can realistically charge for rent is $2,500 that’s not a lot of money at the end of the day. Not to mention a portion of that generally should go to a property manager and account in the event a tenant does not occupy the space, skips a payment or repairs need to be made to the property. In order to see a livable income from residential investments, it usually requires a portfolio of more than one property and years of payment as well, but do not get discouraged by this as residential real estate investments can be built over time and once they are, they can be a very sound investment.

Commercial Real Estate

Commercial real estate opportunities generally include structures (and/or the land a structure sits on) such as multi-family homes, industrial, office or retail properties. Often times these types of transactions are very large and require a lot of due diligence when processed, however commercial real estate investments can be some of the most lucrative due to their size and in most cases stability. If you’re considering a commercial real estate investment here’s some helpful things to know:

More Steady Income

Unlike a real estate property, tenants of buildings that sit on commercial property generally have more robust lease agreements written into a contract and are much harder to break than with a residential lease agreement. Along with a robust lease agreement, also comes a longer time an occupant stays in the property. Commercial real estate properties generally have a much lower turnover compared to a residential investment, which is a common reason this type of investment appeals to an investor.

More Detailed Loan

Commercial real estate investments tend to be larger transactions, which can also translate to a more detailed loan. Some would consider this loan harder to get approved for than a residential real estate loan, which may be true, but if we are being honest anyone investing in commercial property should understand, that’s just the nature of this type of investment. If your goal is to have a commercial real estate investment a helpful recommendation a lot of lenders will provide is to start with a residential real estate investment as these will help to strengthen your profile when applying for the desired commercial real estate loan.

Details of Commercial Real Estate Investment

Since commercial real estate investment tend to be larger, it’s important to shop around for financing. Some lenders are more willing to approve up to only a certain amount, so it’s important to shop around to see what financial institutions offer the amount you’re seeking. The other thing to take into consideration is the type of property you’re looking into or that sits on the land you want to purchase as some lenders have restrictions to what types they can work with. It’s also important to find the right lender for you, as this relationship is not over once the transaction is closed. Due to the size of these transactions, lenders will generally check in even after the transaction is finalized.

Residential and commercial real estate investments can be quite tedious, however the payoff of these investments is generally worth it. There’s a lot to know about these types of investments and these are just the start. If you’re looking to make an investment speak to one of our property loan experts to gather more information.

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We do not guarantee the accuracy or completeness of the information presented in the article.