When purchasing an investment property, you have many properties to choose from. You could pick a cosy residential home, or you could opt for a bustling commercial property.
Residential properties include single-family homes, duplexes and small apartment buildings. On the other hand, commercial properties include retail, offices and industrial. Both property types have their perks and risks, so it’s best to learn more about your options before you make your final decision.
The Pros And Cons Of Commercial Investment Properties
If you choose a commercial space, you’ll be investing in a property that will be leased by a businessperson to use for their company.
A few significant advantages of investing in commercial spaces are:
- Higher Earning Potential. Commercial properties usually have higher rental prices, so you’ll potentially earn more money with a commercial property than a residential property.
- Longer Lease Agreements. Lease agreements for commercial spaces tend to be longer, so there will be less stress about tenant turnover, and you’ll have a predictable income stream.
- Professional Relationships. Because your tenants will be businesspeople, your tenant-property owner relationship will be more professional than casual. This can make it easier to receive rent payments, negotiate lease agreements and discuss issues.
- Tenants Often Cover Outgoings. In many commercial leases, tenants pay most of the outgoings such as rates, insurance, and maintenance—reducing your ongoing costs as a landlord.
However, there are also a few disadvantages to understand:
- Higher Purchase Price. Commercial properties are usually more expensive than residential properties, so the total purchase cost is typically higher.
- Tougher Lending Conditions. Borrowing for commercial property often requires a larger deposit and involves stricter lending criteria compared to residential investment loans.
- More Complex Property Management. When compared to residential homes, commercial property management is usually more complicated.
- Market Sensitivity. Commercial property income and demand can be more affected by economic conditions and business confidence than residential property, which tends to have more consistent tenant demand.
The Pros And Cons Of Residential Investment Properties
Residential spaces are designed for families and individuals looking for comfortable homes. Residential investment properties are usually simpler than commercial options.
Some benefits are:
- More Affordable. Residential houses tend to be more affordable and accessible than commercial properties, making them better opportunities for buyers on a tighter budget or new investors.
- Potential For Long-Term Appreciation. Properties can appreciate over time. You can improve the value of your property through renovations, reroofing, painting, etc. Investors generally have a higher amount of control over residential spaces than commercial spaces.
- Simplified Property Management. It’s usually easier to manage residential properties than commercial properties. Consider working with professional property managers to truly streamline your experience.
Of course, there are a few cons as well:
- Lower Rent Prices. Compared to commercial properties, residential spaces generally have lower rental rates.
- Shorter Leases. Lease agreements tend to be for shorter periods, increasing tenant turnover and increasing vacancy risks. You can reduce tenant turnover by keeping up with property management and ensuring your tenants are well taken care of, encouraging them to stay for a long time.
- Less Professional Tenant-Property Owner Relationships. While commercial tenants tend to be businesspeople, residential tenants can be any kind of person, and they may not handle interactions as professionally as commercial tenants.
What To Do When Choosing Your Investment Property
How do you decide which kind of property is right for you? Furthermore, how can you improve the property-buying process?
- Investment Goals. What are your investment goals? Are you interested in steady cash flow, long-term appreciation, portfolio diversification or something else? Think about your particular goals and how they can align with residential or commercial investment properties.
- Risk Tolerance. Residential properties are usually lower-risk investments, as they’re often more affordable and easier to manage. On the other hand, commercial spaces are more expensive and complicated to manage but usually have higher returns.
- Time Commitment. How much time can you invest in your properties after you purchase them? A professional property management company can streamline management for residential and commercial spaces, simplifying the process for you while making sure your property and your tenants are taken care of.
- Professional Services. Buying property is a complicated process. Rather than doing it alone, consider working with a real estate agent to ensure you get everything right. A professional’s help can be invaluable, regardless of whether you’ve purchased property before or if this is your first time.
Making The Right Southland Property Investments
Property investments are one of the most popular and rewarding kinds of investments in New Zealand, and we at Todd & Co Realty would love to help you find the next best property for your portfolio. You can find all of our listings on our website.
Or, for personalised assistance, call us on 03 218 7124 or message us online. We look forward to helping you secure your new investment.
Todd & Co Realty: Buy and sell Southland properties with confidence and friendly professional support.