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How do commercial and residential properties differ?

As someone looking to purchase property without much experience in the field, choosing which type of property to buy can create the first real roadblock in your decision-making.

It is important to look at both the benefits and potential downsides of both commercial and residential property before making a final choice.

Pros and cons of commercial property

Leverage discusses the differences between commercial and residential real estate. Commercial property refers to any property containing more than 5 units, which includes things like apartments, hotels and office buildings. On the other hand, residential properties will contain one to four units. This can include single-family dwellings, townhouses and condos.

Commercial properties typically have higher returns, longer lease periods, a better chance for increasing property value and more qualified tenants with fewer obligations. These serve as the most desirable parts of a commercial property.

On the other hand, they also cost more in money and research, depend heavily on economic trends and suffer from a higher rate of zoning laws and competition from bigger retailers and corporations.

Pros and cons of residential property

As for residential properties, the biggest downsides include a high turnover rate, a lower cash flow, and a bigger dependence on the overall quality of the neighborhood that the property calls home.

However, they have lower entry barriers, less dependence on economic trends, a steadier demand, and earlier IRS depreciation.

Each person buying property has a different vision and goals, so what makes or breaks a deal for one person might hardly affect another. It is important to keep that and a fair amount of flexibility in mind when moving forward with a purchase.

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