Residential v/s Commercial – The Better Investment

There is no one size fits all approach in investment. Both commercial and residential properties have their benefits. Each individual has his unique goals and objectives that he wishes to achieve through his investments, therefore one must do a complete need & goal analysis before investing in any investment product.  Below are some key parameters that one must keep in mind while deciding.

1. Rental income is an important consideration for some people. Commercial properties give three times higher rentals than residential properties. So in terms of rent, commercial property is a much better option.
2. Vacancy risk- Vacancy risk is always higher in commercial as compared to residential. Assuming other factors being constant, it may take longer to find a tenant for a commercial property than a residential.
3. Maintenance- Maintaining a residential property is much cheaper and easier than a commercial property. Maintaining a commercial property can be 4 to 10 times more expensive than a residential property.
4. Lease period- Leasing period is always short in residential and longer in commercial. Leasing in residential is usually for 2-3 years whereas in commercial, it can go up to 11 years.
5. Cost of loan- It is low in residential and high in commercial. Banks give loans on low rates for residential properties as compared to commercial properties.
6. Liquidity- Liquidity depends on location and few other parameters. However residential sells faster than a commercial property.
7. Economy impacts residential properties less than commercial. Commercial properties are always impacted more in case the economy gets hit.
8. Residential properties are safer to invest and have a history of giving constant returns. With the growing middle class and migration to bigger cities, residential properties give good return over a period of 7-10 years, if purchased after doing basic due diligence of the property and the area. On the contrary commercial/retail properties might give better returns than residential in short term but they mostly have a life cycle and a limited shelf life.

 

 

 

 

 

 

Raunaq Singh Arora

Ace Consulting

You may connect with me at
raunaq@aceconsulting.co.in