Real Estate Agent and Trainer, Robert Rico, explains the difference between Commercial Real Estate and Residential Real Estate. Do you want to see more video blogs? Subscribe here!
What is the difference between residential and commercial, you ask? The answer is simple: the difference lies with the property-type, the typical commission amount earned upon closing a transaction, the education required to understand and succeed in that particular field, and the work culture of the overall environment. A typical commercial real estate career will consist of negotiating properties such as office buildings, hospitals, entire apartment complexes, and malls. Whereas, an agent that is involved in a residential real estate career will focus on residential real estate such as houses and condominiums- property used for residential use, whether it be a single family type or multi family type such as a duplex or triplex.
Commercial real estate is focused in return on investment, therefore it is a lot less emotional and relies more on hard numbers. Some of the important questions in commercial real estate are “what the cap rate?”, “what is the monthly ROI (return-on-investment)?”, and “what is the payoff schedule?” There’s a much greater risk but often a greater possibility of a larger financial reward. You must be more adept at calculations and realize that customers are not looking for “their dream home” but more at a good investment vs. a bad one. There is typically less of a turnover rate on a commercial sale since investors tend to hold on to their buildings for many times longer than people usually stay in their homes. Your commissions may be ten times as large, but they definitely don’t come as frequently. For this reason, it’s important to save lots of money for living expenses — even more so than a residential agent — and be able to weather the storm if nothing sells within a year or more.
Being in commercial real estate is a much more corporate and data-driven environment than residential. While residential agents might reach out to buyers through a cute social media post, commercial agents are much more likely to formally present data and numbers to their clients, rather than show them pictures of rooms or backyards. Commercial clients expect agents to be ready with cap rates, gross rent multipliers, and more – all things that a residential agent would never really deal with.
Residential sales can be a much “softer” market in the sense that people purchase with emotions in mind, and people need homes to live in by a certain time frame. A commercial investor is not as concerned with moving in by the end of summer, or falling in love with a dream kitchen – they are thinking in terms of numbers and rent schedules and insurance rates more than anything else!
To sum it up, commercial agents need to have all the data, and must be patient, confident, and persistent to succeed in the competitive field that is commercial real estate.