The Comparisons
Both commercial and residential properties provide their own advantages and disadvantages. Prior to investing it is important to compare both options and identify which one is most suitable for you.
Commercial properties are used by businesses for office space, industrial works or retail. The advantages for commercial property investment include:
Tenants are often more reliable in terms of being able to pay the rent. Commercial tenants are usually required to provide a bank guarantee of 6-12 months to secure their lease obligations. It must be noted that prior to selecting a commercial tenant a rigorous vetting process is required.
Tenants are responsible for outgoings such as rates, insurance, repairs and maintenance.
Tenants are more likely to make improvements that will increase the value of your property.
The disadvantages for investing in commercial property include:
Commercial properties can remain untenanted for long periods of time, especially in uncertain economic times.
Commercial properties generally have lower capital growth potential because the building (which will depreciate) takes up majority of the land.
Some of the questions you should consider prior to investing in commercial property include:
Is the area surrounded with good infrastructure such as roads and transport networks?
Will the property attract tenants that are willing to enter into long term lease agreements?
Does the building suit the type of tenants that you seek?
Can you afford to service the debt if the property were to be untenanted?
The advantages of investing in residential property include:
Unlike commercial property, residential property is less likely to be untenanted for prolonged periods of time.
Residential properties have a higher land to building ratio than commercial, so they usually offer higher capital growth because the value of land increases, but buildings depreciate.
The disadvantages of investing in residential property include:
You are responsible for maintenance costs of the property.
Residential properties’ rental return is usually lower because you cannot charge as much rent as commercial properties.
In summary, both commercial and residential investment options provide great advantages, however it all comes down to which option is most suitable for you.
If you require any further information in regards to the above article, please do not hesitate to contact The Quinn Group on (02) 9223 9166 or submit an online enquiry.
