Before purchasing a new investment property, you should always consider the differences between residential and commercial real estate investments. Depending on your financial means, expectations and investment plan, you will have to decide which one can be more profitable for you. Most people will invest in residential properties, as this seems to be a safer endeavour requiring less money, however, if you have the means, commercial properties can be highly profitable. You should also consider that while traditional residential property investments might not have very high returns on your investment, repossessed or foreclosed properties, can bring you a net yield of up to 12-15%. property investment
Property Types for Residential and Commercial Investments
Houses of four units or less, to rent to private tenants are usually considered residential properties. You can invest in buy-to-let residential properties, which means that you’ll get the rental yields every month, or purchase the property solely for future resale. Residential property investments vary from more traditional buy-to-let investments somewhere near your own home to investments in overseas real estate, below market value properties or foreclosed houses. Commercial properties are for businesses, and include a variety of properties, from apartment blocks and office buildings to hotels, restaurants, warehouses and industrial buildings, just to name a few. Managing a relatively small residential property is obviously simpler than managing commercial properties, where you will often need a professional real estate management company to assist you.
Researching the Real Estate Market
While you will always need some knowledge of the property market and current conditions to make a successful investment, residential properties are simpler to research and value. It is relatively easy to compare different residential properties, their prices and investment potential in a given area. Commercial properties, however, are often unique and require specialised knowledge to value accurately and to establish an investment plan.
Risks & Yields
Residential properties are generally regarded as low-risk investments. They also tend to cost much less than commercial properties and will thus be more affordable, especially if you’ve just started building up your investment portfolio. The relatively low risks and the low purchase price, however will also mean that your profits are lower, and your return on investment will come mainly from increases in capital value.
Commercial properties, on the other hand have higher risks, but also higher potential returns. The significantly higher prices will also mean, that for personal investors, only collective investment schemes are affordable for larger commercial property investments. The relative unpredictability of the commercial property market will also bring more risks. While residential property prices generally double every 10 years, this is not true for commercial properties. You can expect a net yield of up to 7-10% on commercial properties, which is higher than the net yield from traditional residential property investments, and a large part of your return on investment will be in the form of rental income.