Residential vs. Commerical Real Estate | Paul Sternberg of Houston
Tenant expenses, maintenance, leases, and other responsibilities vary considerably between commercial and residential properties, making for two entirely different investment prospects. That’s according to Paul Sternberg, an experienced real estate investor, entrepreneur, and businessman from Houston, Texas.
Sternberg goes on to explain that, generally speaking, residential real estate makes for a more straightforward investment. “It’s with this in mind that many first time investors tend to opt for residential, rather than commercial,” suggests the Houston-based property investor.
Of tenant expenses, maintenance, and leases, Paul Sternberg of Houston further reveals that all three of these areas are more complicated when dealing with commercial real estate.
“In the commercial real estate, tenants are generally expected to pay some or all of the maintenance costs, taxes, and insurance premiums associated with the property,” says Paul Sternberg. “In terms of a residential lease, however, all necessary expenses are typically factored into the agreed rent amount for the property.”
Furthermore, with taxes, insurance, and maintenance costs regularly fluctuating, when dealing with commercial real estate it’s necessary to recalculate these additional charges on a semi-regular basis. “This needs to be done annually at the very least in my experience,” Sternberg suggests.
Explaining maintenance requirements in more detail, Sternberg of Houston highlights that in larger commercial properties, especially shopping malls or sizable office complexes, for example, it’s usually necessary to have on-site property managers.
A requirement by law in a number of U.S. states, these managers are permanently on-site to deal with any issues which may arise. “This is an obvious cost,” states Paul Sternberg, “and one which isn’t a factor in the vast majority of residential leases.”
Paul Sternberg of Houston
Highlighting an advantage of the commercial real estate, Sternberg next points toward responsibilities. “In the commercial real estate, many of the responsibilities pertaining to the property fall directly to the tenant, rather than the landlord,” he explains. “With residential properties, however, the landlord has a duty of habitability to the tenant, meaning that it’s he or she who must accept the lion’s share of the responsibility.”
Sternberg also points out that a commercial lease is more akin to a traditional business transaction, whereas, with residential leases, a landlord will likely be dealing with families and individuals under somewhat less formal circumstances.
“Another benefit of commercial properties is that you’re unlikely to receive a 2 am phone call about a noisy neighbor, a leaking pipe, or a broken toilet, which is something an individual must be prepared to accept as a residential landlord,” he adds.
“Ultimately,” suggests Paul Sternberg of Houston, in conclusion, and wrapping up, “it’s about weighing up the positives and negatives of each property type and choosing to invest in the option which suits you best, both personally and professionally, and especially in the long term.”
To read more about Paul Sternberg, you can visit his blog here.