Residential Vs. Commercial Real Estate: What Are The Differences?

Are you planning to own any property lately and roaming confused about which one to get? Well, then probably it’s because no one has shown you a clear picture about the difference between residential and commercial properties.

Don’t worry; You’ve knocked on the right door, and we’ve got your back. It’s quite obvious that when you’re thinking about stepping into the real state world or property trading, it’ll be nothing but unwise to play blind. After all, there’s too much at stake here.

So, we say you better know first what makes these two different from each other before you write that cheque of yours.

Residential Vs. Commercial: What’s the Difference?

How much different can it be, right? Well, look at the moon in the sky; it’s easy to fit in between your fingers. But we all know, it ain’t just any white ball but an entire globe with a radius of 1737.1 km. Things are pretty much the same here too. So, the first thing that puts these two in two different buckets is –

Rental Return

If you’re thinking about buying the properties to get a better rental return, the commercial properties will surely get you a bigger number there. The thing is, often commercial spaces are rented by business organizations that are quite capable of signing you a bigger cheque.

On the contrary, if you’re expecting to earn some buck from your residential properties, then you’ve got a good chance of not getting anything bulky there. After all, the buying capacity of an individual is much lower than a business organization.

You may also read the difference between interior designer and interior decorator.

Vacancy Risk

We bet you don’t like seeing your properties vacant. But if you’ve got the residential one, then there’s a lean chance of you seeing your property unoccupied. Sounds sweet already, doesn’t it? After all, you’ll often find interested tenants who want a perfect shelter on their heads.

On the other hand, commercial properties have a higher possibility of staying vacant compared to a residential one. But that actually depends on certain things as well, including the location of your property. It’s nothing impossible to happen that gradually it turns into a dead investment due to the lack of appeal of the spot.

Maintenance and Management

When it comes to maintenance and management, things are easier than ever with residential properties. Often the tenants themselves handle the maintenance part unless the disaster is too big for them.

But that ain’t the same case for the commercial one. That’s because the organizations often ask for better and proper maintenance and management of the properties. The reason is pretty much clear too — they can’t and don’t want to afford any interruptions.

Lease Period

The lease periods are usually shorter for the residential properties, and that’s quite normal too. Shorter lease periods give the tenants frequent opportunities to move to other places.

But in this race, the commercial properties are a bit ahead of the residentials as they often come under longer leasing periods. The good thing about this you’ll get comparatively stable financial security there.

Security Deposit

No matter how good and awesome your residential properties are, you can’t ask for a bigger security deposit. That’s because the overall risks are quite low here and the returns are kind of certain as well.

But no one will be stopping you from asking larger amounts for your commercial properties. To be honest, that’s kind of normal there too. The same risk factor jumps in here as the determinant of that.

Amount of Investment

The bigger the risk is, the higher the amount will be, and the same thing goes for the investment as well. So, when you’re planning to lay your hands on some residential properties, it won’t take a bigger bite on your wallet.

On the other hand, a commercial property will eat up a big piece of that money pie. The reasons are quite simple here. Usually, the amount of land and properties isn’t increasing as per the demand.

So, the prices are pretty tight there too. Moreover, the demand of location at times pushes the price a few times higher as well.

Tax Benefits

Residential properties have taken the sweeter bites here too. When the government is asking you to pay the taxes, they won’t make you hold a ‘too big’ bill for sure. But if the property you’re holding has the tag of being commercial, there’s a chance that you might have to write a larger amount on your cheque.

Loan

Come on! We all know buying a property ain’t any cheap game. You might have to need another hand to pull the job off, and that can be the financial organizations too. Yes, we’re talking about the loans.

For buying residential properties, you can easily apply for a loan, but there’s no guarantee that you’ll get that so smoothly. But if you somehow manage to get that, then you can be sure that the interest rate will be low.

On the contrary, getting a loan for a commercial property is comparatively easy, and you might get the loan within a short time too. Don’t smile yet! That’s because the interest rate won’t be so small. The same old high-risk factor here has pushed it to a bigger number.

Liquidity

Residential properties are easy to sell. The equation is quite easy. Often people are looking for new houses, including property agents. So, these assets are kind of convenient to put on sale and get the money back.

But the commercial one can be a hard nut to unload. So, if you suddenly fall in need of money, we don’t think the commercial one can get you that within a short period of time.

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Final Words

There is no doubt that both the properties have their own share of pros and cons. But come on! Isn’t it what the difference between residential and commercial is all about? Well, we guess you’ve got the answers to most of your questions. Now you decide what you’re going to put your money on.