Investing in real estate: Residential vs Commercial

Residential and commercial realty spaces are popular Investment choices that can both increase in capital value and earn dividends in the shape of rental income at the same time. Commercial real Estate is property that is used only for business purposes rather than a personal living space.

A typical investment scenario is where an investor would own the buildings that these businesses occupy and would collect rent from the business owners. Residential real estate investment involves the purchase of real estate for profit. As the name implies residential real estate is used for the housing of people. Residential and commercial real estate however differ greatly in the rental income that they provide. Many investors seek out dividends (in this case rental income) to determine whether or not an investment is worthwhile. Commercial real estate typically has longer leases than residential real estate. A longer lease is good for the investor as it provides a more stable income. Commercial real estate is however more difficult to rent than residential realty as a specific type of tenant with specific needs is more difficult to acquire than a residential tenant.

Unfortunately for the landlords of residential property any maintenance or repair costs are typically passed on to the landlord whereas commercial properties tenants are usually responsible for any costs. The attractiveness of the rental income of each investment also depends on the risk appetite of the investor. If an investor needs an investment that will provide a more stable income; residential property investment is recommended. On the other hand an investor that is seeking a higher return on their investment would prefer the rental income of commercial property despite the higher risks involved.

 Some of the benefits of residential real estate include:

• Residential real estate is easier to invest in as the initial capital required is lower than for commercial property.
• Residential property is an easy way for the investor to hedge against inflation. When inflation causes the value of products to increase, the value of property will increase as well.
• Real estate investments allows the investor to build a more diversified portfolio than commercial investments.

 Some of the drawbacks of residential real estate include:

• As mentioned earlier residential real estate involves higher maintenance and repair costs.
• The returns on residential realty also tend to be lower than for commercial realty.

Commercial property investment has the following benefits In comparison to conventional real estate:

• Commercial leases can be contracts for up to 10 years and thus provide the investor with long term income.
• The return on investment of commercial property can easily be between 8 and 12% nearly double that of residential property.
• The property value tends to increase with a greater percentage over time.

Commercial property also has the following drawbacks in comparison to conventional real estate:

• The property is directly linked to the economy, meaning an economic downturn can be disastrous.
• Tenant vacancies tend to be more difficult to fill than residential properties.
• Commercial property investments often require a large capital deposit, making them unattainable for many investors.

Conclusion

Commercial realty and residential realty thus differ greatly in what they provide to the investor. Thankfully however, every investor is different in what they require from their investment. It is thus up to each individual to choose what they prefer. Get in touch with Propbuying the best real estate agent in Pune for your property investment requirement.