The difference between residential and commercial property investment.


The difference between residential and commercial property investment.

Commercial property only use to be for investors that already had a strong residential portfolio. However interest in commercial property with new investors is growing as they are seeing higher yields, longer leases and less maintenance cost’s compared to residential properties.

Investing in commercial property can be very different from residential property and it is generally considered harder to get started and a riskier investment. Alternatively, commercial property investing can be both successful and profitable if done correctly.

Lets look at some of the pros and cons of residential and commercial property investing:

RESIDENTIAL

Pros:

  • Easier to find tenants with shorter vacancy periods. 
  • Lower deposit required (as low as 5%).
  • Easier to add value through renovations, subdivisions etc.

Cons:

  • Lower yields.
  • Owner pays for maintenance and outgoings.
  • Shorter lease periods. 

COMMERCIAL

Pros:

  • Longer lease periods that are typically 3-5 years with options for renewal.
  • Tenant pays most of the outgoings such as general maintenance and even rates.
  • Generally, higher yields compared to residential property. 
  • Set rent increases per year that can be incorporated into the lease.

Cons:

  • Longer vacancy periods.
  • Higher deposit required (Typically at least 30%).
  • Capital value tied to lease.
  • More restrictions from banks such as regular valuations.
  • Can be harder to resell.

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