Which One Is More Profitable - Commercial Or Residential Investment?
As the name suggests, residential properties include all those building constructions
that are used for dwelling purposes, such as homes, flats, apartments, bungalows, villas, and condos. These are entirely used for private or residential purposes. Alternatively, commercial properties include all those structures that are built with the intention of making profits from rentals or capital gain, for example office buildings, hotels, restaurants, multiplexes, shopping malls, retail outlets, manufacturing units, etc. In brief, residential property is where people reside, while commercial property is where they work. Here are some of the factors to make a distinction between residential and commercial realty investment.
Generally, investing in commercial property is more expensive than investing in residential property. Moreover, financial institutions and banks require investors to pay bigger amount of down payment for commercial investment. Therefore, investors need a larger amount of capital layout. As commercial property involves making higher investments, it tends to generate more taxes than residential properties. This is due to the reason that it offers higher returns with less tenant turnover. The lease period of commercial property is longer, at least for about 3 years, as opposed to lease period in residential properties, which is hardly more than a year. Furthermore, in commercial real estate it is the tenant who is responsible for bearing all the repairing and maintenance costs which might occur, as they are earning profits out of their property. On the other hand, in residential properties it is the landlord or the owner who is responsible for bearing all the maintenance cost. Thus, it is evident by now that commercial realty investments would offer higher returns.
However, there are some downsides of commercial investment. Investing in commercial property is more risky than investing in residential property as it can be affected by pecuniary change. With slowdown of economy, it would be difficult for a company to sustain its business, and it can often result in termination of tenancy agreement. The property owner would have to look for a new tenant to ensure unremitting monthly income. Nevertheless, it would be somewhat difficult to find a new tenant, as there are few renters of commercial property as compared to residential one. Even if the rent is cut to half, it would be still difficult to find a tenant. The situation is completely different for residential property. Owners of residential property can easily find tenants if they cut the rent by 10 to 15 percent, as people are always searching for good accommodations. Therefore, if the existing tenant is shifting to another place, then the owners can expect to find a new tenant easily.
Lease agreement for commercial property is often more complicated than residential property as it comprises several clauses that take into consideration additional factors, such as hazardous materials and zoning issues, that require special attention. Thus, before investing in commercial properties, it is always better to seek assistance of real estate experts. Investors can rely on these professionals, as they have enough experience and expertise to look for options, matching their interest. These real estate agents will also help to negotiate the lease period with the owner of the property.
In a nutshell, it would be difficult to differentiate which investment would make a better choice, commercial or residential, as both serve different purpose for different situations. Investors need to evaluate their personal objective and financial conditions to get the most benefit out of these investments opportunities. It is always profitable to buy the property in developing area for investment like Plots in Sunny enclave are in big demand now days.
by: ajay
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