Before buying a new investment property, you should always consider the difference between residential and commercial real estate investing. Depending on your financial capabilities, expectations and investment plans, you will have to decide which is more profitable for you. Most people will invest in residential property, as this appears to be a safer endeavor that requires less money, however, if you have the means, commercial property can be very profitable. You should also consider that while traditional residential property investments may not have very high returns on your investment, repossessed or repossessed properties, can give you a net return of up to 12-15%.
Property Types for Residential and Commercial Investment
Houses with four units or less, for rent to private tenants are usually considered residential property. You can invest in buy-to-let residential properties, which means you’ll earn a rent each month, or you can buy the property solely for resale in the future. Residential property investments vary from more traditional buy-to-let investments somewhere near your own home to investments in offshore real estate, below market value properties or foreclosed homes. Commercial properties are for businesses, and include a wide range of properties, from apartment blocks and office buildings to hotels, restaurants, warehouses, and industrial buildings, just to name a few. Managing a relatively small residential property is definitely simpler than managing a commercial property, where you will often need a professional real estate management company to help you.
Researching the Real Estate Market
While you will always need knowledge of the property market and current conditions to make a successful investment, residential properties are easier to research and assess. It is relatively easy to compare different residential properties, their prices and investment potential in a given area. However, commercial properties are often unique and require specialized knowledge to accurately appraise and to establish an investment plan.
Risk & Results
Residential property is generally considered a low-risk investment. They also tend to be much cheaper than commercial properties and will therefore be more affordable, especially if you are just starting to build your investment portfolio. However, the relatively low risk and low purchase price also mean that your returns are lower, and your return on investment will primarily come from an increase in the value of your capital.
Commercial property, on the other hand, carries a higher risk, but also a higher potential return. The much higher prices also mean that for private investors, only collective investment schemes are affordable for larger commercial property investments. The relative uncertainty of the commercial property market will also carry more risks. While residential property prices generally double every 10 years, this is not the case for commercial properties. You can expect net returns of up to 7-10% for commercial properties, which is higher than the net returns from traditional residential property investments, and most of your return on investment will be in the form of rental income.
A successful investment plan for commercial and residential properties is to rent them out. Residential rents tend to be much shorter, usually around a year, and private renters are often perceived as less reliable than businesses. Landlords will be responsible for paying for repairs, which may incur unexpected additional costs. Commercial properties, on the other hand, are leased for a longer period of time, 5-10 years is not uncommon, and the annual increase in rental yields will be more significant. Businesses are also often seen as more reliable tenants and commercial tenants are generally required to pay for repairs. You should also consider that while commercial properties can provide you with a safe and high rental income, it is also much more difficult to find commercial tenants.
Exit Strategy for Residential and Commercial Properties
One investment plan is to rent out your property as described above. However, property flipping, or future resale can also be a profitable strategy with both types of investments. Residential properties can be sold fairly simply to another investor or someone who intends to occupy the home, and as long as the property is in good condition and in a well-chosen location, you can usually sell it for a much higher price. the price of the original purchase value. Commercial property can get earn big profits, but the resale process is more complicated. The property must be sold to another investor or group of investors, and must have a successful and profitable record, in order to be attractive to buyers for investment purposes.