With the economy showing encouraging signs of growth, and property prices rising steadily once again, now seems the perfect time for entrepreneurs to start investing in property again.
Property investors often have a choice between buying and renting commercial property or residential houses.
But which is best? We take a look at the two and find out how they measure up:
One of the primary differences between commercial and residential investment is the cost involved. Some commercial properties, like small shops, will cost around the same as buy-to-let properties, but most others such as warehouses, office blocks and larger industrial premises, will cost significantly more.
That, alongside better rates for buy-to-let mortgages, makes it harder to source adequate finance to purchase a commercial property – and that’s why many entrepreneurs enter the residential property market.
1-0 to residential investment!
Of course, every entrepreneur expects to put in a little graft in order to make a decent return on their investment, but it’s fair to say that the less work you have to do to your property, the better.
Here’s where commercial property can come into its own. Unlike residential tenants, commercial tenants are liable to pay any maintenance costs that arise while they’re renting the property – and commercial landlords have very little to do if anything goes wrong.
With commercial property, costs are kept to a minimum as there’s no need to pay for broken boilers, leaking plumbing and damp issues that often rear their heads in residential property.
Commercial property makes it 1-1!
While residential leases can last between just 6 months to a couple of years, the typical commercial lease will last 5, 10 or even 20 years. In the years that one commercial landlord deals with one tenant, a residential investor may have to work with six, seven or even more. That creates uncertainty and results in lost income for the residential entrepreneur – as well as the many hours spent advertising and vetting prospective tenants.
It’s 2-1 to commercial property!
Many entrepreneurs choose to invest in residential property not just because the rates are better but because there’s simply more choice out there. Sourcing a profitable commercial property can be much harder than a residential one, purely because there are more residential properties to choose from.
The large choice of residential property makes it easier for prospective landlords to research the costs involved and accurately value their investment.
Residential property equalises! It’s 2-2!
There’s nothing more important for the property entrepreneur than ROI. And differing types of property can return different yields over the short and long term. Research by Countrywide suggests that a residential property in the UK should return between 5.7% and 6.6% in rental yield, while commercial properties often offer a greater yield.
However, owners of residential property often make a greater percentage of their money through selling their investment after it has risen in price over a number of years, whereas the price of commercial property doesn’t typically rise as much.
That means that, while residential property can offer greater ROI if you buy in the right place, it is far more at risk of market forces. Were there to be another housing crash like 2008 – and the government’s Help To Buy scheme has led to many people complaining of a housing bubble arising in the UK – then residential investors would be hurt much harder than commercial entrepreneurs who depend on rental yield far more than rising property prices.
For a more secure investment, it’s clear that commercial property offers a little more.
Commercial property makes it 3-2!
Author Bio: Pure Commercial Finance are a team of experienced business finance brokers with a focus on excellent customer service; they work with their network of lenders to secure the best possible finance deals for their clients.