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Is it preferable to invest in commercial or residential property?

Is it preferable to invest in commercial or residential property? by @R44D

Answer by Raad Ahmed:

The short answer is: it depends. You will find investors that prefer one over the other for preferential and financial reasons. If you are on the fence about which direction you want to go here are some things you should consider about each type of property.

Residential

Residential properties are classified as Condos, townhouses, single-family homes, multi-family homes, co-op properties, and land.

Pros

  • If you rent or lease responsibly, a single tenant could mean fewer damages and fewer demands.
  • When purchasing a fixer-upper residential property, a few improvements can go a long way in resale value or higher rent prices.
  • You can opt for long-term rent agreements that mean higher annual ROI
  • Property taxes are usually considerably lower than commercial properties

Cons

  • Focusing on a single-tenant situation could be riskier than having several commercial properties. If the occupant moves, you may have a gap in your earning potential until you find another tenant.
  • In some situations, fixing up the property simply isn’t worth the investment. Make sure to consider the neighborhood, crime rate, and income potential of tenants before you invest money in a property.
  • Leasing to families or individuals may lead to more repairs if tenants are irresponsible.

Commercial

Commercial properties can include retail, office, or industrial space.

Pros

  • Businesses are more likely to pay higher lease rates in prime commercial areas.
  • Commercial leases have fewer restrictions than residential properties.
  • People who have these leases have a vested interest in taking care of the property because it is the face of their business.
  • As a commercial investor, you are less likely to be called for emergencies after business hours. (Take care to make sure the agreement indicates how tenants should respond to fires, robberies, etc.)

Cons

  • There is usually a larger investment required for these properties.
  • When working with properties that are frequented by the public, you have more risk of injuries or damages.
  • Lease agreements are usually much more complex.
  • You may be required for more time investment, especially at first. When you work with more people, the chances that issues will arise will be more commonplace.

Real estate can be an incredibly financially rewarding investment. But, to be successful certainly takes some forethought and time learning about the type of properties you want to work with. LawTrades offers a variety of legal services for individuals who are involved with real estate investments. When you start talking about purchasing, contracts, tax issues, and basic laws surrounding this area of law—things can get a little tricky. Allow our expert real estate attorneys to guide you in the right direction!

Is it preferable to invest in commercial or residential property?

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