Investing in Residential Property Versus Commercial Property

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There are substantial differences between investing in residential and commercial property, but it is a good idea to have a mix of both as you grow your property portfolio.  

Residential properties are the ones which are mainly for people to live in and commercial properties are the ones which are intended for businesses to operate from. Though these two are totally different kinds of properties, determining the affordability is important for both of these types.

It is important for you to ask yourself and maybe a financial consultant “I want to buy a new house how much can I afford” in order to decide on your affordability.

Residential Property Investing

The residential properties as have been said before are mainly for the purpose of residence. In general, most people invest in residential property. It is perhaps the first idea that can come to mind if one thinks of real estate investment and is more of a kind of basic necessity for people.

This is because real estate residential property provides for the place for people to live in; thus it is the living space. Such properties can include apartments or simple homes, condominiums, townhouses and even duplexes.

In general, you can have a set number of expectations from your residential property. You will have all the probable ideas on what to anticipate from the investment and what are the things that are to be cared for in order to maintain the property.

Residential investments are more common because they are usually in high demand with low vacancy periods.  However, you are not likely to get they bigger cashflows that a commercial property can provide.

Commerical Property Investing

Commercial property is mainly for the business operations.  For example, if you purchase a shop, it can be rented out to be used as a doctor’s office, restaurant, corporate office or retail store.  In general people start off with investing in residential properties and then they go on to invest in the commercial properties.

There are different kinds of rules involved with commercial properties. So, it is important to get accustomed with the regulations involved with buying a commercial property.

This can help you with buying the property in the right way and earning money in the right way too.

The main benefit of commercial properties are the high rental yields.  You can get much higher rental returns compared to a residential property.

The main disadvantage of commercial properties are having longer periods of vacancy (often months at a time), finding commercial tenants and the banks will normally have a lower Loan-Value Ratio.

Difference between residential and commercial property

Though residential property is more of a basic necessity first than the commercial option; most of the market watchers and even real estate brokers are of the opinion that it is much better to own a commercial property than owning a residential property.

Actually, purchasing a property is done mainly for the investment purposes and if that is to be considered, commercial properties are the best investment options.

The valuation of the commercial properties are done in a different way and this helps in diversifying the risk factors involved with real estate investment.

But overall, the cash flow with regards to a commercial investment property is much better than that of residential properties.

It is always a good idea to have a diversified property portfolio and therefore, you should always be open to the idea of having both commercial and residential properties that you hold.

This is a guest post by Gabriel from Mortgage Fit.


 

7 Responses to Investing in Residential Property Versus Commercial Property

  1. I’ve invested in multi-unit residential property, and although it is a pain to deal with some tenants, it is at least pretty simple to manage and understand.

    With commercial property, on the other hand, you really have to know what you are doing. Leases last for as long as 25 years and you need to have the proper clauses built into all of your agreements or you might be leasing your property for much less than going rates. What I’ve learned is that you need to learn the commercial business from someone else before you really get the knack, and you must have a pretty good lawyer to help write your contracts and negotiate lease improvements.

    I’m guessing that part of the reason commercial cash flows are higher is because of these barriers to entry.
    Chris @ The Money Ways recently posted..How the 4% Retirement Rule WorksMy Profile

  2. I’ve also preferred to invest on residential properties. The concept of Tenancy is much easier that those of commercial aspects. Although sometimes, some tenants are not that cooperative. Real estate property- residential are much easier to handle,that’s why I guess most are up to it.
    [email protected] Remodeling Expansion recently posted..Austin apartment building damaged in fireMy Profile

  3. Naturally for me residential property would be beneficial. but a commercial would also be an option also . Both has its says when it comes to acquisition of property. I would probably go for residential as long as jurisdiction of owning a property would not flag down.
    Mortgage Advice Berkshire recently posted..Residential mortgage in Maidenhead – how can I get the lowest mortgage rate?My Profile

  4. As a real estate agent, I have never had a client come to me and ask about investing in commercial property. It’s an unknown opportunity hiding in the shadows, but it’s interesting to learn that the lease payments to the investor are higher. I would imagine there is less buying competition as well, which would leave room to negotiate.

  5. In general it is a tough time to buy a new home especially in my location. But, I have some friends making money by buying a new home and renting out their old homes. The rent in these homes covers the mortgage and then some so it’s quite a good investment.

  6. Very interesting perspective on real estate investing…I own 5 rental properties and honestly never have considered owning commercial property, but I might have to look at the numbers and rental yields in Florida now.
    Jupiter Inlet Colony Real Estate recently posted..Jupiter Inlet Colony Homes Sales For 2011 Mid YearMy Profile

  7. Property investment is a proven wealth creation strategy and is a secure investment that provides the benefit of a potential regular income as well as capital growth. Thanks.

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