Using Your Capital: Should You Invest in Residential or Commercial Property?

capital

 

When investing in property you want to be sure that your hard earned capital does not go down the drain. Like any investment decision, you need to carefully weigh the pros and cons of this type of investments. Whether it is your own money or some form of property development finance that you have acquired, it’s important to ensure you invest in the right areas.

ADVANTAGES OF COMMERCIAL PROPERTY

The leases on commercial properties tend to be longer and secured by bank guarantees. They therefore offer assurance to the buyer as he feels that he or she is making a sound investment.

The cost of maintenance is lower because most tenants of commercial properties tend to take care of the property because the appearance of the property affects their business negatively or positively. The commercial leases also seem to favor the owner in offering protection in the form of make good clauses, maintenance clauses and management clauses.

Rent on commercial property is reviewed annually and generally increases by CPI or 4% whichever is greater.

The net returns on commercial property are generally high and ranges between 7% and 10% as compared to residential property. You may also become involved in this process if you are buying a business and the property comes as part of the deal. In residential property you must pay for all outgoing costs and other costs. On the other hand deductible rates on commercial property are higher than the residential because of the depreciation rates.

BENEFITS OF INVESTING YOUR CAPITAL IN RESIDENTIAL PROPERTY

You will definitely need to make lower deposits which are important if this is your first investment property and depending on your credit history you may borrow up to 100% on the purchase price. If you opt for a mortgage to finance your plan, the mortgage rates on residential property are generally lower.

The commercial property business is less predictable as compared to residential property; according to past studies residential property appreciates in value in fact double in value in seven to ten years. With careful research you will be comfortable in your skin as you invest your capital in this kind of market.

Lenders tend be strict when it comes to commercial property. If your property is not occupied by tenants by the time you purchase the property then you will have to pay GST.

Even though commercial property leases are longer than residential property leases, it is easier to find tenants for residential property than commercial property which means your property is hardly vacant. It may take months or longer to find a tenant for residential property.

Finally whether you choose residential property or commercial property if you study your market carefully you are sure to meet your returns goals. All you need to have is property investment strategies that will be profitable in the long run. Some of the key strategies to keep in mind while buying any kind of property whether residential or commercial are:

Cash flow versus growth strategy, houses versus apartments, off the plan strategy, old versus new properties strategy, higher versus low prices strategy, renovation strategies and development strategies. There are still more strategies you can apply when considering investing in property but it is how well you apply your strategy and location that really determines your success in this field.