Which Is Better For Investment Commercial OR Residential?

Deciding whether to invest in commercial or residential real estate is not a decision that is to be made in a rush. As both residential as well as commercial real estate market has its own unique sets of pros and cons. Also, it’s entirely up to an investor’s personal preferences of what their goals are and how much time and liquid capital they have set to accomplish that goal, how many risk challenges are they ready to tolerate.

Therefore, to make the process of decision-making less stressful here is a guide that compares commercial or residential real estate property which would help you in deciding where you want to invest.

Difference between Commercial and Residential Real Estate Property

Residential real estate property such as single-family homes, four-unit rental residences, apartments, condos, duplexes, and quadraplexes’ are residential real estate property that can only be accommodated and leased to a family or an individual and cannot be used for any business purpose. Whereas, commercial properties such as industrial, retail, office, special purpose buildings, hotels, and multifamily can be leased only to businesses.

The last and most crucial difference between residential real estate and commercial real estate property is that from an investor’s point of view, commercial real estate property offers a wider opportunity of investment with a greater return of investment. Hence, a greater number of commercial property investment funds exists rather than residential property funds. Moreover, in residential real estate property, the investor gets to play a more active role while investing in property.

Benefits of Investing in Commercial Real Estate

Greater Returns

With the greater risks comes greater rewards. This saying goes hand in hand with commercial real estate investment. The more space the more the tenants which in turn equals greater income. In commercial real estate property investment, although the risks are greater the return on investment is worth all the risks. Compared to residential real estate property, commercial real estate property offers not only a handsome cash flow but also handsome cashback as well. Commercial property is a great way for an investor to diversify their portfolios.

Extensive Leases

In commercial real estate property, the lease time period is greater than residential real estate property meaning that commercial real estate property leases usually range from five to ten years whereas residential real estate property leases range from six to a maximum of 12 months. For investors, it’s a plus point as it would have lower turnover costs as well as vacancy rates.

Qualified Tenants

Residential real estate property investors, at times, face difficulties in renting out their property to qualified tenants who would also keep the property spick and span. Whereas, in commercial real estate property, the qualified tenants are usually the business corporations, etc. Because qualified tenants are more respectable towards the property as well as the terms and conditions.

Triple Net Leases

In commercial real estate investment, triple net leases are a win-win situation for both the property investor as well as the tenant. In triple net leases, the mortgage is the only thing that is to be managed by the property owner whereas the lessee manages all the maintenance expenses of the property.

Easier To Increase Value

In commercial real estate property, the value of the property can be determined by the amount of cash flow. Whereas, in a residential property, the value of the property is determined on the basis of comparison with other residential property. Simply put, the more the cash flow of a commercial real estate property the greater the value.

Currently, commercial plots for sale are available in Park View City Lahore. Park View City Lahore is designed and developed to offer its residents a luxurious lifestyle at affordable rates. Therefore, Park View City’s Commercial zone offers a great opportunity to businesses for expansion as well as increased cash flow while bringing high-end brands and business within the accessibility of Park View City residents.

Benefits of Residential Real Estate Investing

Cost of Entry

Even for a new investor, the cost of investing in residential real estate property is way much lesser than the commercial real estate industry. On average, anyone belonging to the salaried working class might not be able to save enough to make a substantial down payment of a commercial real estate property instead may have enough savings to invest in a small family residential real estate property. Also, this can also be put in a simpler way where a new investor invests in residential real estate property in order to generate a stable cash flow while gaining experience and saving enough capital to later invest in commercial real estate property.

Declined Tenant Turnover

In residential real estate investment, if an investor’s core focus is single-family homes then a decreased tenant turnover is something that is common. Growth and change are a part of business, and tenants that frequently move from one place to another are the ones that make up their commercial real estate properties. Hence, retaining tenants for a longer time period becomes a challenge itself.

In order to decline the tenant turnover rate, it’s important that the tenants are properly and thoroughly screened so that the tenants are retained for a longer period of time while treating your residential property as their own.

Soft and Lenient Zoning Laws

In the commercial real estate industry, the rules and regulations are severely strict for commercial real estate property investors and owners as compared to residential real estate. In commercial real estate zoning laws are sternly severe and acquiring building permits is a difficult challenge itself. Whereas, in residential real estate, the zoning laws, rules, and regulations for property investors or owners are far more lenient and reduced.

Massive Pool of Potential Buyers and Renters

Everybody needs a shelter, a place where they can live, isn’t it? Therefore, the investors of the residential real estate industry make the most out of the enormous pool of potential tenants and buyers as compared to the commercial real estate industry, which solely depends upon businesses. With the businesses turning over to remote working and online marketplace, commercial real estate investors of some market segments find retaining tenants a difficult task. Whereas, in residential real estate, irrespective of the market segment, a constant high demand for residential real estate is what increases not only the opportunity for investors but also motivates investors to invest in residential real estate property.

Performs Better In Economic Calamities

During an economic recession or decline, businesses are first in line to be greatly affected which in turn affects the commercial real estate property investors and owners. Attracting tenants in the midst of an economic crisis is a difficult challenge itself. There is certainly no guarantee at all that whether a business would be able to sustain itself during an economic recession or not to fulfill the time period of a commercial lease. Whereas, in residential real estate, despite the economic declines, residential real estate owners would always keep making the most out of residential real estate investments as housing is a market that never goes out of demand and is also immune to economic hardships.

In the heart of Pakistan’s capital city, Islamabad Capital Smart City is a residential real estate project being developed by HRL and FDHL and is the best opportunity for local as well as overseas Pakistanis to gain a great return on investment rewards on their hard-earned money by investing in Capital Smart City. As Islamabad Capital Smart City payment plan guides the investor on how to invest in Capital Smart City while keeping the investor within their budget.

In conclusion, commercial and residential real estate industries have their own pros and cons however, investing in commercial or residential real estate property is a decision that only an investor can make as he/she knows the goals they want to achieve, the time period they want to achieve and the pay back reward they yearn based on their experiences and the time they can give to their real estate business.