People who want to invest in the real estate sector confusion aroused in the minds of the property buyers whether an investment in a commercial property or residential property one would provide better income option.
Real estate investment is one of the best ways to earn a passive income. It is the most stable and lucrative form of financial investment.
One should make note of the fact that:
The residential properties are generally leased on an annual basis. whereas, The commercial properties are leased for long tenures.
If you intend to make an investment in the property to earn returns you should be careful while choosing the type of property is it residential or commercial.
Following are the most important aspects that need to be considered at the time of selecting an investment in a commercial property or residential property asset:
- – Prevailing Market conditions
- – Procurement price
- – Location
- – Size
- – Construction quality
- – Layout
- – Usage
- – How old is the property
- – Reputation of the builder
|Residential Real Estate||Commercial Real Estate|
|Steady source of rental income with guaranteed marginal increase with every passing year||Good Source of not only regular but also a very sizeable rental income|
|Investment cost is very low||Higher investment cost|
|Prevailing market conditions do not affect and correlate||Market conditions do play an important role|
|Lease periods are reasonably very short||Lease periods are in particular very long|
|Property can be flexibly used for various purposes||Property can be used only for commercial purpose|
|There is a high risk of availing delay in possession||Getting possession is not an issue unless the investment is made in a property under construction|
|The landlord has to bear the responsibility and costs of all repairs and maintenance||The tenant is generally responsible for repairs and maintenance|
|Rental yield is not very attractive for ready to occupy homes||Rental yield is very high which for sure depends on certain factors like construction, location, and market conditions|
|Higher maintenance and upkeep costs with lower returns due to frequent change in tenants||Stable and long-term rentals with predictable income streams|
|Rental value does not go down if the market is slow||Rental value increases with capital appreciation|
In short, it is very essential to study the details carefully and figure the right property that needs to be to be invested in for earning a rental income from the same.
To invest in commercial property other than for self-use like:
- — Office Space,
- — Retail Space,
- — Warehouse Space
should consider aspects like: –
- — current leasing environment,
- — ecosystem existing in the region,
- — what is the distance between complementary and auxiliary industries,
- — legal due diligence,
- — all the clearances that are specific to the property’s usage.
A residential property, on the other hand, must be evaluated with regards to its ability to live by means of:
- — social infrastructure,
- — the surrounding environment,
- — neighborhood and
- — profile of other residents.