Commercial VS. Residential - How Significant is the Difference?

[Nir]

Hi All,

In the following example, is commercial pretty similar rental business to residential?:
- Investor A purchased 5 residential triplexes.
- Investor B - 4 commercial triplexes each with an active store on the main floor. The store management is not part of the business JUST the rent collection etc. (`tenant`/store operator is a different person than investor B who only owns the land and building)

Would you say both businesses (Investor A`s and Investor B`s) are pretty much the same Management-wise and Time-wise?

What are the 3 most significant differences in your opinion between the 2 investments?
Let`s limit it to the example. in other words the intention is not to compare a triplex to 200-plex but more specifically a store and apartments to apartments.

Thanks,
Neil

 

[Thomas Beyer]

can you get CMHC financing on the store portion ? I think not .. thus interest rate will be 2-3% HIGHER on store financing portion ..

rent on store is more volatile as it is commercial i.e. higher vacancy / higher "tenant inducements" thus NET RENT has to be MUCH higher to compensate for higher financing costs and higher vacancies !!

 

[RanjitPlaha]

Ditto as per Thomas.

Plus, the residential portion is way easier to rent out vs the store front. When the economy turns, like right now, the residential units are more in demand because people don`t qualify as easily for mortgages for purchases. The store front is harder to rent out because the last thing on peoples mind is to start a business or move a business from their current location.

 

[Nir]

Thank You Ranjit and Thomas, Great input!