Residential vs commercial property - what is the better investment?
Updated: May 29, 2018
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Pros & Cons of Residential Investment
Generally lower rental returns (3.6% and slowing across Australia according to CoreLogic, January 2018)
Higher potential capital growth and resale value over time
Homes are generally more expensive to purchase, so you’ll need a larger deposit to get started
You as landlord must pay certain costs and fees such as council rates, water, body corporate, maintenance and repairs which chips away at cashflow
Leases usually span 1 year so you could find yourself with vacant property - and out of pocket - for periods of time
Pros & Cons of Commercial Investment
Commercial property values are more tied to the health of the overall economy and supply of similar spaces
It can often take longer to find tenants, you’ll need some flexibility in your budget to cover this
If you choose well, you should receive higher rental returns; sometimes double to nearly triple. Plus, fixed rental increases are built in annually.
Commercial property can be cheaper to purchase, so might be good way to jump into investing
Tenants pays most costs and fees such as council rates, water, body corporate, maintenance and repairs. Goodbye bills!
Tenants can also add value to the property with renovations and upgrades
Lease usually span 3-10 years
You are more likely to experience poorer resale value/capital growth and the value of the property usually drops if you sell when vacant or close to the end of a lease.
So, should you choose to invest in residential or commercial property? The answer is… probably both! Smart investors keep their options open and decide what is the best fit for their portfolio and stage of life at the time. And, whether you feel like a home or business space is the best buy for you, the smartest investors always minimise risk by undertaking independent research and seeking expert advice.
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