If you're considering investing in property, it can be hard to know where to start, especially when choosing between commercial property and residential property as an investment.
In this blog, we will go over some of the pros and cons of investing in both of these types of Real Estate and their key features and benefits.
Income Yields
Because they are typically much larger and can house more tenants, the income yield is usually higher for commercial properties. This means they are more likely to be cash-flow positive.
However, this does depend on many factors, including the ones we will mention below.
Stability And Consistency Of Income
Leases tend to be longer for commercial investments, which offer more stability than residential leases, as these can be as short as a few months. However, this is only a benefit for as long as there is a tenant in place
Because of the higher risk on commercial leases and the unpredictability of the market, it's harder to replace a commercial tenant than a residential one.
While there will likely always be people looking for somewhere to live, there may not be people looking for commercial property, so there are more likely to be longer vacancy periods, meaning the investor will have to cover outgoings without rental income during this period.
Reliable Tenants
Another benefit of investing in commercial real estate is tenant reliability. A commercial tenant has good reason to keep their rental in good condition because they will often be relying on it to appeal to customers and clients to see profits. This is not the case with a residential property.
Maintenance
With the previous point in mind, this is especially relevant. A commercial lease is able to state that the tenant has to pay for ongoing costs and maintenance, something that residential leases can't.
So, should something go wrong in a commercial property, it's the responsibility of the lessee rather than the investor, meaning they can often see a bigger return on investment due to lower outgoings.
Lease Terms
However, residential leases, while less flexible, have the benefit of being straightforward and fixed, so the process is streamlined.
On the other hand, the differences between individual commercial leases can be huge depending on the type of building and a raft of other factors, meaning investors have to work harder to draw up a lease and may need to pay to hire a lawyer or financial advisor to get this done.
Whatever type of property you choose to investment in, our local, expert real estate agents in Nelson Bay can help you find commercial or residential properties in the area.
Call us today to discuss our current real estate listings available for inspection in Nelson Bay.