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Commercial vs. Residential Property Investment

by Mish Daniel | Free Information

There are pros and cons to both sides of the commercial versus residential property investment debate. If you are wanting to know which investment may be right for you, the following tips are for you!

Real estate is a lucrative investment platform, if you know the key factors to filter for. 

Without sound industry knowledge or an expert to guide you, it can become quite confusing, diving into due diligence, knowing what to negotiate and how to make a commercial vs residential property investment profitable.

What Is Commercial Property?

It is a collective name for types of properties where you can run a business from. This often includes office spaces, retail, warehouses, and industrial spaces.

What Is Residential Property?

Buildings and spaces that are designed to be lived in are commonly referred to as residential properties. These can be owner-occupied, meaning the person who owns it is residing in the property – or rented out by the owner as an investment.

To allow you to make the most informed decision for your portfolio, let’s consider the different due diligence factors for each investment type.

What Is Residential Due Diligence?

There is a popular Latin phrase that translates to ‘let the buyer beware’. In other words, you are inheriting the challenges that come with the property once it goes unconditional.

This is why due diligence is so important. It allows you to investigate the environmental, location, financial and physical properties of the property.

Whether you’re buying a single apartment of a larger property, doing in-depth due diligence before finalising your contract is highly recommended.

Consider the Residential Due Diligence Checklist below for what to consider before you invest. 

Residential Due Diligence Checklist

The are two key areas that come into play with Residential Due Diligence: Building and Pest and Financial. The following areas go into more detail: 

Building & Pest

  • Soil and Groundwater Contamination
  • Their urban living 
  • Flood and Fire Risks
  • Land Boundaries 
  • Safety 
  • Building Permits 
  • Connections for necessities like water, gas, sewage, internet and electricity 

Financial

  • Evaluation of the property
  • Personal finance

Now that you know a bit about residential property and due diligence, you should look at the commercial aspect. 

What Is Commercial Due Diligence?

The biggest differentiating factors of commercial property are that where residential has two main factors for due diligence (Building and Pest, Financial) – commercial due diligence can have up to eight!

These include:

  • Building & Pest
  • Financial (Personal)
  • Location Opportunities 
  • Leasing & Hours of Operation
  • Current & Potential Cashflow
  • Zoning
  • Certifications & Planning Approvals
  • Council Rates

Commercial Due Diligence Checklist 

As there are many factors to consider for commercial property, we have created a FREE Due Diligence checklist for you to download and learn from.

Simply CLICK HERE to download it

now!Understanding what’s possible and right for you can be as simple as having a conversation and exploring your options. 

If you’d like to know what’s possible for you over the next 12 months, regardless of where you’re starting from, here’s your invitation to get your FREE Wealth Growth Plan. In just 8 simple questions, it will allow you to understand what your personalised plan could look like – and get your very next steps to making it happen.

is it better to invest in residential or commercial property

Is It Better To Invest In Residential or Commercial Property?

If you’re considering which is better to invest in – residential or commercial real estate – the following article will outline the pros and cons to each.

Advantages of Investing in Commercial Property 

  • Easy Management: Commercial properties are easier to manage because you have less responsibility when it comes to maintaining the place. 
  • Better Cash Flow: You get better profits when you rent out a commercial space than when you rent out a residential property. 
  • Allows You To Investigate Your Potential Tenants Carefully: Businesses are always registered and must have licenses to operate. This makes it easier for you as the owner to carry out background checks on them.
  • Less Risk Due To Comprehensive Due Diligence: Unlike residential, commercial property requires a certain level of due diligence to be carried out prior to contract settlement. You can download your FREE Due Diligence Checklist for Commercial Property here.

Things to Consider When Investing in Commercial Property

  • You’ll likely need professional help and legal advice 
  • It may call for a larger investment capital – unless you are participating in a joint venture. See our webinar on this by CLICKING HERE!
  • You’ll need either a property manager or the time to manage the property and tenants

All of these ‘disadvantages’ can be mitigated by partnering with an expert commercial property buyer’s agent.

Advantages of Investing in Residential Property

  • Less Due Diligence Requirements:  Where Commercial Property has at least 8 different areas of research, residential only has 2 main areas.
  • Short-Term Leases: If you’re experiencing any issues with your tenants, due to the normal 6-12 month leases, it can be easier to replace difficult tenants with new ones.

Things to Consider When Investing in Residential Property 

  • Low rentals 
  • Low tenancy rates 
  • Evicting errant tenants 
  • Limited data for background checks 

You should consider all of these factors carefully if you want to make the best decision on investing in commercial property versus residential property. We suggest you talk to a commercial buyers agent to get a better understanding of how commercial real estate investing can work for you! 

Revolve Commercial helps clients and investors like you step into their dream lifestyle by building their commercial investment portfolio with safe, cashflow positive properties.  

Not only do we walk you through every step of the way,  as part of our buyer’s agent clientele, you also get access to our comprehensive education, giving you the opportunity to learn in-depth along the journey.

To find out what your next steps are in your commercial journey and get a free 12-month roadmap tailored to you, all you need to do is simply answer eight simple questions!