People who are relatively new in real estate investment are often confused about whether they should invest in commercial or residential property. That’s because the volume of money required to start the investment to the returns offered varies. For example, a shop in the posh area of Islamabad can cost equal to a 7-10 Marla house in a not very posh area of Rawalpindi, i.e., near Adyala Road, even though both are neighboring cities.
If you are also new to real estate investment and looking for options if you should invest in commercial property/project or get a residential plot, house, or apartment, here is your ultimate guide to which investment is better.
Residential or Commercial Property – where should one invest?
Which investment option suits you the best depends upon your investment goals, the budget, and what you are actually anticipating from your investment.
Residential investments are relatively less costly compared to residential property. While commercial projects are costlier, this property has more worth in return, and returns on investments are higher than buying a house. The amount you can get from these commercial properties in the form of rent is also higher.
Here are some salient differences between residential and commercial investments to help you decide between both.
● Purpose of investment
Your investment goal is the primary factor impacting your decision between residential and commercial investing. Will you use the property for your personal, i.e., living or corporate requirements, i.e., doing business, or will it be a source of regular income, i.e., rent? Do you merely wish to keep the property and resell it later?
Residential properties are often utilized for self-sufficiency or as rental property for possible tenants, allowing you to generate a monthly income from the property. You might also explore a long-term residential investment in a house or land to sell it for a higher profit in the coming years.
On the other hand, commercial properties attract business owners or corporates who need office space for their employees or a shop to sell their products. Commercial investors may also be interested in acquiring an empty plot of land and transforming it into a warehouse or office building, where various offices may be rented or sold to various organizations.
● The amount required to make an investment
Various variables impact a residential property’s value, including its location, the vicinity, the facilities available in that locality, and so on. Likewise, other factors include the size of the residential plot/house, city, and developer/project if it is in a housing society. All of these factors make the amount of money required vary.
On the other hand, commercial properties and their values are also influenced by a diverse set of factors. Two are a store on the main street and a readily accessible office building. However, it is crucial to remember that investing in commercial property is not only expensive in general, but there is also a size restriction on commercial plots and stores, with a restricted variety accessible.
● Governmental rules and regulations
In terms of design, structure, building rules, and rental agreements, residential property owners often have much more leeway. Developing a home is also less difficult since fewer zoning and planning licenses are required, i.e., there isn’t any RDA, and LDA approval is required to start the development.
On the other hand, for a commercial property, the rules and quite strict, and one has to go through a lengthy process to gain the necessary approvals to develop and design as you see fit.
● Returns on investment
Commercial properties’ ROI takes the lead when compared with residential property. In general, renting and reselling a commercial property will reward you far more than renting and reselling a residence.
Simple economics rules apply here: commercial investment has higher risks, but it also has higher benefits. The value of commercial real estate also increases more rapidly over time. Selling a successful cash cow store will be much easier than building a new floor in a house to increase its price.
● Cost of property maintenance
This factor is usually not considered when investing as it is the aftermath, but it is also worth considering for a wise investor.
Houses, apartments, and plots are less expensive to maintain than commercial properties. The commercial property owner has to pay more taxes and higher utility bills, as is the case with all commercial enterprises because the overheads are often greater.
There is, however, a flipside. As the owner of residential properties, you may be responsible for all upkeep and repairs of the house/apartment. On the contrary, people usually make a contract before leasing their commercial property that places this obligation on the tenant utilizing the space for business, relieving some of their maintenance duties while saving a lot of money.
Whether you need residential or commercial property depends on the outcomes you are anticipating, and you must consider the factors listed above to make the right investment decision. But if you are looking for more guidance, we recommend consulting with real estate investment consultants.