Commercial vs Residential Property Investment

26
Jun
2014
Posted by: Michael  /   Category: Real Estate   /   No Comments

While classic real-estate investment strategies focus mostly on residential properties in the last couple of years the commercial real-estate market has become a solid proposition for maximizing gains.

While there are of course pros and cons on each side of the market, in the end, the deciding factor would be each individual investor’s preference, experience and expectations. The following list of arguments may help people that are looking to invest in real estate but are unsure of what exactly to choose, residential or commercial

Residential Real Estate Investing Pros and Cons

The biggest pro of residential real estate investment is that most people already have experience with it. It is easy to understand as everyone has owned, rented or lived in an apartment or house at one point in time, thus, challenges and expectations can be well balanced.

Another pro, particularly if the property is located in an upmarket area is that the market of willing buyers will grow exponentially, reducing your wait and giving you quick returns on your investment. Other pro’s when it comes to residential real-estate is that it offers several tax write offs and it doesn’t require a huge upfront investment to own.

The cons of investing in residential real estate is the small positive cash flow that comes with single family residential properties as well as the unstable, insecure position a landlord is in when agreeing to leases that generally go for a single year.

Depending on where you property is located, Residential Tenancy Legislation can become a burden especially if you encounter problematic tenants. It will take weeks, even month to evict them, months where you won’t just be losing money, but also time spent preparing the proper documentation. Due to the same legislation, there is little a landlord can do to get delayed or non-paid rent back from an evicted tenant.

Commercial Real Estate Investing Pros and Cons

The pros for commercial real estate investments are many. Higher rent, and landlord expenses like tax, insurance or management included. Leases tend to go for much longer, anywhere from 3 to 5 years. The legislation is also more flexible allowing owners to evict non-paying tenants almost immediately.

The cons of commercial real estate investments are also quite a serious list. The larger percentage for down payment, the longer time required to rent out or to sell out all available spaces and the higher vacancy rates are just a few.

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