Commercial vs residential real estate. What’s more attractive for investment?
Real estate has always been a lucrative investment option for people looking for high ROI. A little research and understanding of the real estate beforehand can help understand the risk associated with each property type, the set of challenges that come along, and the underlying opportunities that can benefit the investor.
Real estate is broadly categorized into residential and commercial, both of which have their unique set of pros and cons for investment purposes.
What is residential property?
Residential property is created solely for living. Though they can be used as multi-use spaces for both commercial and residential use, they are mainly rented and leased to families and individuals for accommodation.
What is commercial property?
Commercial real estate is a wide umbrella that covers big parts of the market under it. They can vary from apartments, daycare centers, condominiums, and movie theaters to parking lots, industrial floors, warehouses, and retail spaces. To make it simple, any property that is explicitly used for business is termed commercial property.
The core difference between the two is the legal aspects and the way both are either rented or leased.
Benefits of Commercial Property:
Higher returns
Commercial real estate is associated with higher risks, but those who take risks are entitled to big rewards. Commercial properties are the best when it’s the cash flow and returns under consideration. For anyone looking to diversify their portfolio, commercial real estate is attractive.
Qualified tenants
Corporate tenants tend to respect the property and its rule as compared to families and individuals that are not likely to keep your property up to snuff. Finding qualified tenants for commercial property is easy and makes the owner’s life easier.
Triple net leases
Thinking about a win-win? A triple net lease is just the case where the owner transfers all the property expenses to the lessee and pays nothing in maintenance costs. Commercial real estate investors can benefit highly from triple net leases, that are exclusive to commercial properties.
Easier to increase the value
When you have the right tenant, the value of your property is likely to soar because it’s directly impacted by the revenue the property is generating. The property values are determined by the cash flow the property is earning- the higher the earning the better the value. So investors can see an increase in value given the tenant is just right.
Benefits of Residential Property:
Cost of entry
Newbies looking to start with real estate investment can make a good start even with small capital for a down payment that is considerably low than commercial property. Making slow and steady investments in single-family homes and then taking a leap to commercial buildings can be a smart and safe move.
Decreased tenant turnover
Businesses are evolving fast, and those are commonly the tenants that make up commercial real estate. Hence the occupancy is volatile, which adds up the hassle of finding new tenants frequently. Whereas it’s the opposite for residential properties, families are more likely to stay for a longer period, and the turnover is not something you have to deal with often.
Lenient zoning laws
Laws and regulations are very relaxed for residential properties; meanwhile, zoning laws get strict,and building permits are hard to come by when dealing with commercial real estate.
Performs better in economic crisis
The effects of economic turndown are felt by businesses the most, which can hurt commercial investors in return. Housing is always in demand and can be less challenging for investors to find long-term tenants.
Do the due research before making an investment decision and choose the one that benefits the most.