Ladybird Living – Your London Estate Agent
Commercial vs. Residential Properties for investment
A popular question among many property investors is ‘Which one is the better investment – commercial or residential properties?’
The best investment would depend on a variety of factors and primarily depends on what you would like to gain out of the investment.
Residential property refers to property that is zoned specifically for living or dwelling, for individuals or households. Residential properties are the most common among investors. Flats, studio flats, flat conversions, bungalows, semi-detached and detached houses are all considered residential properties.
Commercial property refers to a place where business is conducted. The five main categories of commercial properties are:
- Offices
- Retail e.g., shops
- Industrial e.g., warehouses
- Leisure e.g., pubs/ restaurants
- Healthcare e.g., hospitals
Advantages of residential real estate investing
- Property management is usually easier with residential properties compared to commercial properties: you would only be managing a few residents at a time with residential properties, whereas commercial properties (e.g., warehouses) usually have hundreds of tenants making it more challenging to manage.
- Benefits from taxation: Investing in real estate offers various tax advantages to property owners. Rental revenue, mortgage interest, property management fees etc may be deductible for property owners who have tenants.
Disadvantages of residential real estate investing
- Tenant turnover can be more frequent
Advantages of commercial real estate investing
- Tenant turnover is usually lower: Businesses are the most common tenants in commercial properties, where lengthy leases can run up to ten years or more.
- Benefits from taxation: Commercial property owners get similar tax benefits to residential property owners.
Disadvantages of commercial real estate investment
- Management of commercial real estate may be challenging when done alone: collecting rent and coordinating repairs requests is far more difficult and time-consuming compared to residential properties.
- Price of the property: commercial properties tend to be more expensive than residential properties.
The information in this post is valid to the best of our knowledge on the date of posting. It is advised that you seek independent advice based on your individual circumstances.
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