Residential Real Estate is single and family-type buildings. Apartments, studios, flats, duplexes, etc. are types of residential properties. Some people invest in residential real estate to live in that place and some of them want to generate extra income from residential real estate investment by renting it out.
Whereas, Commercial real estate is anything lent to run a business. Warehouses, office spaces, hotels, etc. come under commercial properties. Commercial real estate investors sometimes use their properties to run their own business but some people lease their space to other businesses.
Commercial real estate is an excellent opportunity for making an investment and producing extra earnings. There are various people over time that have begun to invest in commercial properties, with these sorts of properties being bought and acquired on a regular foundation, this can be an exceptional way to invest your money with the ability of good return.
However, some people might think that is it better to do commercial real estate investment than investment in residential properties? So according to CEO and Co-Founder – Strata, Sudarshan Lodha, “While it is true that profitability is much higher in commercial real estate, entering the commercial real estate market as an individual investor is tough. Legal complications, domain knowledge, and financial components are various hurdles that come in the way of retail investors. However, now they can be solved by opting for Real Estate Investment Trusts (REIT) or fractional ownership.”
Additionally, he told that “Having witnessed the rising demand for commercial real estate and positive future graph I would advise investors who are eyeing a second residential home from an investment perspective should in lieu consider investing into which will offer far better returns. Also, the main reason for preferring commercial real estate over residential counterparts is the higher rental value. Commercial real estate offers up to 3 times the returns to that of residential properties.”
So, before every person ever decides to make investments in commercial real estate, it is extremely crucial to apprehend the industry and all of the components surrounding it.
Advantages of commercial Real Estate Investment
1. High Rental Income Potential
Rental income is firstly taken into consideration while investing in real estate by an individual. The rental income gained from commercial properties is more attractive than residential properties as it provides high rental income. The rental income obtained from commercial properties is approximately double that of residential properties. Commonly, income earned from residential properties is 1-2% while the rental yield from commercial real estate is 8-12% per annum. Renting a residential property gives a chance to earn additional money but in the case of commercial property, it has been found that it gives passive income.
2. Long-term and stable flow of income
Although the rental income obtained from commercial property is higher than from residential property, along with that the longevity of lease of commercial properties is also higher ranging than residential properties. Hence, it not just provides higher income but also consistent income for a longer period of time which leads a little room for tenants to switch to another property. According to Arvind Nandan, senior real estate professional, “When you think of investing, with respect to rental income expected in residential versus commercial property, do note a few points. While most residential properties need to be leased on annual basis; commercial properties are leased for longer tenures.”
3. Opportunity to build professional Relationships
The owners of commercial properties operate the business by renting their property to well-established businesses. So, both owner and tenant get opportunities to build business-to-business relationships. Also, the owner of commercial property can enjoy multiple business relationships as the property is rented by different business owners for different periods of time. On the other hand, renting a residential property provides the opportunity to build familiar relationships with one group of people.
4. Futuristic investment
A solid past gives a bright future. Investments in some segments of the commercial real estate marketplace, like health care, renewable energy projects, etc., are expected to grow in the coming years. The opportunity to spend money on properties designed to fulfill the wishes of our changing population and economy is one of the merits of commercial real estate investment. Whereas residential property owners can only rent their properties in order to earn extra income.