Many people looking to invest in property wonder if it is better to invest in commercial real estate or residential. Some investors like to have properties that are exclusively one or the other, whereas other like to have a mix of both residential and commercial properties.
Of course, the principle of investing remains the same – every investor wants to see a good return on investment. How can you know which is the best sector to invest in? Here is a short guide to the major differences between investing in commercial real estate and residential properties.
Investing in Commercial Real Estate
Generally, investing in commercial real estate provides the biggest return on investment. Usually, it is possible to sign up commercial tenants on longer leases and they are more willing to pay for repairs and maintenance to the property.
Most businesses prefer longer leases because it means that they have some stability with their business and avoid the high expense of having to move. This means a steadier cash flow for investors than is sometimes possible in the residential market.
However, leases on commercial properties tend to be much more complex and involved than with residential properties. Therefore, it’s always important to have a competent lawyer to review carefully each lease.
Of course, businesses are affected by the economy and sometimes they can experience financial difficulties. What happens in the event of a rent default should be included in the lease, however, landlords can evict tenants easier who fail to pay rent.
Investing in Residential Properties
It is usually easier to start investing in residential properties. Compared to commercial properties, it is much cheaper to buy residential properties to rent out.
One advantage of investing in residential properties is that people always need somewhere to live, even in bad economic times. This means that it is easier to find tenants for residential properties than for commercial ones.
However, tenants tend to stay for shorter periods in residential properties. Usually, the lease is for between one and two years. Another advantage of the lease is that is much simpler than a commercial property lease.
One disadvantage of investing in residential properties is that it can be harder to evict tenants who can’t or refuse to pay rent.
In the end, the dividends that investing in commercial property offers is much higher than residential property investment.
