Residential property is defined as distinct property that earns income from houses, apartments, cooperatives, and apartment buildings.
Commercial property is a term used to describe property whose income is derived from non-residential housing, such as retail space, office buildings, industrial business tenants, and all other non-residential housing.
The advantages and disadvantages
Residential Advantages:
1. Large selection of tenants to rent to and high demand for rental housing.
2. High income edge from steady cash flow from multiple units and houses.
3. Residential property is relatively easy to finance and can simulate home financing.
4. Residential property is often priced lower than commercial property.
5. At worst, you may be living in a multi-family property and supervising the tenants.
residential disadvantages
1. Management and maintenance are constantly required in residential property.
2. For a house that only has one family living in it, if no tenant pays or moves, there is no income.
3. Repairs are more likely on residential properties.
4. It is more difficult to dispute a residential property tenant and there are limits that must be met.
Commercial Advantages:
1. Commercial properties offer long-term leases that provide consistent income and investment stability.
2. In commercial property management it is not so demanding, because most leases state that you are responsible for damages and repairs.
3. To fit out the space in a commercial property, the tenant can pay the landlord a fixed fee and a rent discount.
4. Commercial property owners thrive on steady income that increases as property values soar.
Trading cons:
1. Commercial property loans are more difficult to obtain, because lenders require down payments that can be quite high, and adjusted rate loans can be unreasonable.
2. Commercial spaces are often difficult to lease and can sit vacant for long periods of time; this is not positive for an investor who has limited financing. Lawyers are also often needed to write the leases that commercial tenants must abide by.
3. Inexperienced individuals wishing to invest in commercial property should be warned that it is not easy to break into and can be overwhelming for a new owner.
There is no perfect answer as to which property is suitable for a certain purpose or person, however, whether commercial or residential, a person seeking this type of investment must consider all aspects of the venture. Ask yourself what it is that you really want to achieve and don’t rush to make a final commitment until you are well aware of all the worst case scenarios that can occur. Once you have thought it through, you will recognize which option suits you best.