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.