There are advantages for commercial and residential properties, but the more you know about which market you’re entering into, the better chance you will have at succeeding.
Commercial properties are great for those who have some business knowledge. If you understand a potential tenant’s financial history and goals, it will give you a better idea of what your potential earnings could be. Commercial properties can also offer great returns. These properties tend to have a larger annual profit than residential investments. Also, leases are usually for longer terms and there are options for renewal. Compared to residential properties, commercial tenants tend to stay longer, which can give a greater sense of stability for you as the owner.
However, a commercial property investment is not for someone on a tight budget. It can be harder to find a tenant as it is a lot of work for businesses to change locations. Businesses do not usually move as regularly as families. In some markets, incentives may need to be offered in order to attract a company. An example of this is one month’s free rent. This is just one thing that can put you out of pocket right at the beginning.
Residential properties are a great option as there is a huge demand for it. If a person is unable to buy a house, they have very few options other than to rent. This means you will have a large group of potential tenants at your doorstep. However, rental terms are often shorter, compared to commercial properties. Some tenants consider renting a short term alternative as they themselves are building a home or saving to buy their own home. Therefore, the rental term can often be 6 months to a year.
As you can see, it can be a back and forth battle to decide which investment would be best for you. Just remember, the better you understand the market, the greater your potential future profits could be.