Commercial Vs. Residential Property Investment

You may have noticed that buying property can be a rather lucrative opportunity and a stable investment for the future.  However, many potential investors may not be entirely sure of what type of property investment they would like to make such as commercial or residential property. There are various advantages and disadvantages of investing in these two types of properties.  Here we will discover the pros and cons of investing in commercial and residential property to find out which type of investment is better for your particular needs.

Leases and Maintenance

With a commercial property, the leases can be anywhere from three to twenty years which is a secure financial gain.  These leases are particularly beneficial because they are often secured by bank guarantees, so you know that you will receive your money whether or not the client can pay.  With residential property, leases are for much less time.  This means that you will continually have to look for new renters, so basically your income may not be as stable as having a commercial property tenant.  Commercial tenants normally maintain the property better as this space is usually used as a place of business.  If the ambiance is messy or not kept up, the business itself will suffer.  Residential tenants do not have to worry as much about the space they are renting so they may not keep the space as well kept as a commercial property tenant.

Making a Profit in Property

Many investors are concerned with the type of profit that they will be making by investing in the real estate market.  Rent for a commercial property is reviewed annually and can be increased by 4{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} or by the CPI.  The greater number is usually used.  Another financial benefit of investing in commercial property is that you can make 7 to 10 percent net in returns. Residential properties may not receive such high return rates because the property owner must pay additional costs.  However, residential properties can historically be tracked to know that the property will most likely double in its value every 7 to 10 years whereas a commercial property’s return rate may not be as predictable.

Residential Properties

Residential properties do not require a large deposit.  Receiving a loan may be easy depending on your current income and your credit history.  Commercial deposits of mortgages require much more investment with at least a 30 percent security deposit.  Lenders are not as strict with residential property investments.  Residential properties for this reason seem to be better for first time property investors whereas commercial properties are reserved for those who have more experience buying and selling in the real estate industry.

Knowing the property market helps to make the right decision as to which type of property you should invest in.  Researching the property you are interested in as well as the market, is the best way to make an informed decision and a safer investment.