Commercial Property VS Residential Property

Cost

Commercial property purchases tend to be larger projects, requiring greater outlay than residential property investing. Deposits also usually need to be larger - for commercial properties the purchaser usually needs to put up at least 30 per cent of the purchase price. Interest rates on commercial loans also tend to be higher.

Compared:

Commercial: larger properties and usually a larger minimum deposit required, at at least 30 per cent of total purchase price.Residential: - smaller deposit required, usually at least 80 per cent of total purchase price but in some cases purchasers can borrow up to 100 per cent.

Returns

Net income for landlords tend to be higher for commercial investment, ranging around 7 - 10 per cent after costs. In part this is due to the fact that tenants pay for insurance, ongoing maintenance and other outgoings.

Compared:

Commercial - tends to attract higher net income. Tax deductions can be more substantial as depreciation tends to be higherResidential - investors usually need to pay all maintenance and associated costs.

Length of Leases

Commercial contracts attract longer lease periods. Most commercial leases are signed for three years or more.

Compared:

Commercial - leases are longer, being usually three years or more, and even up to 20 yearsResidential - shorter leases of around six - 12 months in length

Risk and Property Values

While historically, the majority of residential property has tended to double every decade or so, demand in commercial property can fluctuate with the business cycle. However, both types offer good capital growth opportunities for keen investors.

Compared:

Commercial property - property value growth is harder to predict, but risk can be minimised by choosing to invest in a popular and in-demand commercial areaResidential property - property value growth tends to be more predictable, with steady growth in demand pushing up prices over the longer term

Maintenance Costs

Most residential property maintenance is the responsibility of the landlord, while the leasor or the owner of the commercial property usually passes on responsibility for maintenance to the commercial tenant.

Compared:

Commercial property - the tenant has responsibility for ongoing maintenanceResidential property - the landlord covers maintenance costs for the property, though this can be negatively geared

Tenants

Residential properties are generally easier to let as it takes longer to find commercial tenants. However, commercial tenants tend to pay more attention to maintaining the property as part of their business, and this may even be a condition in commercial leases.

Compared:

Commercial property - commercial tenants tend to keep properties in their original condition or even improve themResidential property - residential tenants tend to be easier to find than commercial tenants

Both types of properties have their pros and cons and it's advisable to research the types properties well before you make an investment decision and start thinking about issues associated with purchasing such as stamp duty, home loan fees, property law fees, tax, and other issues.

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