Friday, September 28, 2012

Commercial Property VS Residential Property By Jane L Coopers

Cost

Commercial property purchases tend to be larger projects, requiring greater outlay than residential property investing. Deposits also usually need to be larger - for commercial properties the purchaser usually needs to put up at least 30 per cent of the purchase price. Interest rates on commercial loans also tend to be higher.

Compared:

    Commercial: larger properties and usually a larger minimum deposit required, at at least 30 per cent of total purchase price.
    Residential: - smaller deposit required, usually at least 80 per cent of total purchase price but in some cases purchasers can borrow up to 100 per cent.

Returns

Net income for landlords tend to be higher for commercial investment, ranging around 7 - 10 per cent after costs. In part this is due to the fact that tenants pay for insurance, ongoing maintenance and other outgoings.

Compared:

    Commercial - tends to attract higher net income. Tax deductions can be more substantial as depreciation tends to be higher
    Residential - investors usually need to pay all maintenance and associated costs.

Length of Leases

Commercial contracts attract longer lease periods. Most commercial leases are signed for three years or more.

Compared:

    Commercial - leases are longer, being usually three years or more, and even up to 20 years
    Residential - shorter leases of around six - 12 months in length

Risk and Property Values

While historically, the majority of residential property has tended to double every decade or so, demand in commercial property can fluctuate with the business cycle. However, both types offer good capital growth opportunities for keen investors.

Compared:

    Commercial property - property value growth is harder to predict, but risk can be minimised by choosing to invest in a popular and in-demand commercial area
    Residential property - property value growth tends to be more predictable, with steady growth in demand pushing up prices over the longer term

Maintenance Costs

Most residential property maintenance is the responsibility of the landlord, while the leasor or the owner of the commercial property usually passes on responsibility for maintenance to the commercial tenant.

Compared:

    Commercial property - the tenant has responsibility for ongoing maintenance
    Residential property - the landlord covers maintenance costs for the property, though this can be negatively geared

Tenants

Residential properties are generally easier to let as it takes longer to find commercial tenants. However, commercial tenants tend to pay more attention to maintaining the property as part of their business, and this may even be a condition in commercial leases.

Compared:

    Commercial property - commercial tenants tend to keep properties in their original condition or even improve them
    Residential property - residential tenants tend to be easier to find than commercial tenants


17 comments:

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  4. Nice comparison, it has been always a dilemma when you choose commercial vs residential. Hard to pick! You need to be extra cautious when it comes to commercial property sales.

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  8. There are few of the clear examples for what has been discussed yet. Increasing land rates in major cities of India provide a proof in support to this discussion. Let’s have an example of residential properties in Greater Noida and Noida. Few decades ago, most of the land in Greater Noida and Noida was just a land in rural areas that does not have much prices. But, in present context it is one of most costly areas in the country. This can be easily experienced by those home buyers that are looking for a flat in an apartment in Noida or Greater Noida.

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  14. I love to read about your experiences! You write beautifully! I have enjoyed reading your articles. It is well written. It looks like you spend a large amount of time and effort in writing the blog. I am appreciating your effort. George offers Commercial Property Investing opportunities and teaching Commercial to Residential Conversion.

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  15. There are lots of things we must think of in order for our Investments in Australia to succeed. We must be responsible in everything that might effect in our business negatively. We have to focus on how we can control our business well enough for us to survive in the future.

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  16. Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic.
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