Real estate is one of the most cherished and strong physical assets to invest in. Here, prices don’t waver daily, which also makes it a very reliable, trustable source of investment. Investing in a property is a challenging decision, given the huge financial sum involved. And, if you are to pick between commercial and residential options, the decision is even more daunting. So, what is the difference between residential and commercial property? Well, it is the approach you need to adopt when selecting one.
What is Residential Properties and Commercial Property?
These are two distinct investment markets with different dynamics and goals.
Residential properties: These are homes or apartments that could be standalone homes, townhouses, studios, etc. You may buy a residential property and may rent it out. This is one of the biggest benefits of residential property investment, where you not only earn rent but your property price also appreciates.
Commercial property is any property that is primarily not used as a residence. These include office spaces, retail spaces, warehouses, hotels, hospitals, etc. Commercial property is where you run your business through. Many companies prefer renting a commercial space rather than buying one and saving their capital for investing in their own business. So, among the prominent benefits of buying commercial property is the rental income you earn and the higher ROI you get.
Main Difference Between Residential and Commercial Property?
Residential vs. Commercial Property
Both have their characteristics, and there are different considerations while buying. It is the purpose of the property which is the main difference between residential and commercial property. Mainly, one is where you live or someone else lives (residential), and the other is to carry out services/ business (commercial).
Apart from the basic purpose of a property, residential and commercial properties are different from each other in terms of regulations, income potential, market dynamics, and risk & returns. Let us see how.
Regulations:
Another difference between residential and commercial property is their location. Each has designated areas and is governed by separate laws. Residential areas have a limited scope for commercial activities.
Income Potential:
Residential property is bought by individuals looking for either a place to live or an investment. Commercial properties by investors seeking rental income from business entities. With the commercial setup, better management and maintenance are required.
Market Dynamics
Factors like housing demand, lending rates, etc., affect homebuyers. Commercial properties are driven more by economic conditions, location of the space, industry demands, etc.
ROI and Risks Involved
Residential property offers more stability as rent is more or less stable and steady. This also lowers the risk. Commercial properties fetch high rental income. However, economic conditions drive the occupancy status of a property, making it quite risky.
Cost
When buying commercial property for investment, keep in mind that it would be expensive as compared to residential property.
Now let us have a look at the benefits of commercial property investment.
Also Read: Advantages of Real Estate Investment in Sus, Pune
Advantages of Investing in Commercial Propert
- Steady Cash-Flow
A commercial real estate investment ensures steady cash flow when to shares, stocks, and other bonds you have invested in. Income stability keeps stress at bay even when the financial market is volatile.
- Build Equity
Equity is the amount of value an investor has built up over some time. Commercial property offers relatively higher returns which helps you build substantial equity in a short period. Besides that, the property also appreciates.
- Excellent Appreciation
It has been proved time and again that commercial properties have always fetched excellent appreciation value compared to other asset types. With proactive management and cost-effective improvements, the value only improves.
- Loan Advantage
Generally, real estate is purchased using a loan facility. That allows you to buy an asset without having to pay fully. This is a profitable proposition for investors too.
- Secure Investment
Another difference between residential and commercial property is that commercial property has a solid intrinsic value. Both the land and the structure make it a desirable physical asset. Commercial property at the right location prevents any investor loss, even during rough days. This makes investment in commercial property the safest and most secure type of real estate investment.
Now let us go through the benefits of residential property investment.
Advantages of Investing in Residential Property
- Rental Income
Whether or not you live in the house that you bought, you may rent out the same. That gives you a steady income month on month. This steady cash flow allows for building equity for yourself.
- Tax Advantages
The govt. Offers tax benefits to individuals who buy a home using a home loan. You may claim benefits on the principal amount as well as the interest payout in the financial year.
- Diversification
You must not put all your eggs in one basket. The same holds for investment also. Buying a home, keeping some amount in FDs, mutual funds, gold, etc., there are numerous ways to invest your money.
- Good Resale Value
At any point in time, if you wish to sell your home, you will get a good appreciation for your investment.
If you are confused about making a real estate investment, this handy guide will help you identify the difference between residential and commercial property and assist you in making an informed decision. Whether residential or commercial, go through this reckoner and bet your money right.