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.