Real estate is the biggest investment trend at the minute because property value is on the increase and you stand to make a lot of money. Most people tend to invest in residential properties but you also have the option to put your money into commercial properties instead. Both areas are profitable, neither more so than the other if you get it right, so how do you decide between them? Most of the time, it depends on what is available in your area and your personal expertise. To help you decide, these are some of the differences between commercial and residential property investments.
Availability And Price
One of the major reasons that people tend more toward residential properties is that there is simply more of them around to buy. That means it’s easier to find a property to buy and you’ve got a lot more choice. This also has an impact on the price of properties and how flexible sellers will be with them. If you’re buying a residential property, the seller is more likely to go below their asking price because they know there are plenty of other houses around that you could buy instead. But with industrial real estate investment, you aren’t as likely to find another similar property in the area. That means sellers will hold firm on their price and you can take it or leave it. That doesn’t mean you shouldn’t buy commercial properties, but if you’re working to a particularly strict budget and you want to try to cut costs, residential might be best. It’s also worth noting that a residential property will be a lot cheaper generally, simply because of the size of the property.
It’s also harder to value a commercial property than it is a residential property. The price of a residential property is based on what other similar properties in the same area are selling for, and the demographics that are buying them. However, a commercial property value is based on the potential income that you can get from it so when you’re looking at places, think about who is likely to rent the space and what they’re willing to pay for it.
Overall, you’ll pay more for a commercial property but you’ll make more income from it. If you do your research when purchasing a business for sale, it will ensure you get one that will give you a good return on your investment, it is just as viable as buying a residential property.
Tenants
The major difference between the two is finding and maintaining tenants. When you’re renting out a residential property, those tenancies are going to be relatively short term. You’ll have to spend time and money finding new tenants when they move out.
Even if they’re staying for years, the tenancy will be a lot shorter than it will in a commercial property. If you’re renting out a factory or an office building, the company that moves in will spend a lot of money setting it up and moving to another location is incredibly expensive and time consuming for them. That means they’ll usually be staying there for decades until they outgrow the space. The average life of a business is at least 15 years according to Professor Richard Foster from Yale University. Most leases for tenants are one year or less. If you want to save stress on turnover, buy a commercial property.