When it comes to property investing, there are a lot of options out there.
Choosing the right one can offer stability and a passive rental income while growing your wealth. Real estate is also a tangible asset that offers potential tax benefits and equity too.
The main question now is: what kind of property investment should you pursue? Is it safer to purchase residential real estate? Or will it be better to focus on commercial property that can be leased to businesses?
To help you weigh your options, I’ve prepared a brief guide about residential and commercial properties when it comes to property investing.
What makes residential property a good investment?
Housing is an essential commodity for people in every suburb, community and state, so there will always be a demand for residential properties.
But on top of this, the work-from-home shift due to the pandemic has also encouraged more people to look for homes that best suit both their living and working requirements.
This has presented some great opportunities for investors like you to secure strong and consistent cash flow from residential real estate.
Some additional benefits from investing in residential properties include:
- Value appreciation – Through renovations, popularity, policy changes and local development, you can earn more money as the value of your home increases;
- Tax deductions – From expenses to interest on borrowing, investing in residential property comes with many potential tax exemptions; and
- Borrowing power – Your investment home’s equity can be leveraged to buy another property.
What are the types of residential properties?
There are different kinds of real estate that serve as dwelling places for individuals and families. The most common residential properties you can invest in are:
- Free-standing houses – Perfect for housing a family, they are built on a single lot with no shared walls and utility systems. This is the most popular type of property and offers the most privacy and flexibility.
- Duplexes – A duplex is normally a residential building containing two homes that share a common central wall. They can be covered by one land title or can exist as separate titles. A body corporate is not usually needed, however the owners must agree to a building insurance policy that covers both sides of a duplex.
- Townhouses – Townhouses are composed of multi-floor homes with shared walls but different entrances, you own the dwelling but share the land.
- Apartments – An apartment is a self-contained flat/unit in a large housing building, you own the unit but the common property is shared with different owners. The owners and residents need to comply with the by-laws or rules as detailed by the body corporate.
- Land – Owning a portion of land gives you the flexibility to develop the kind of residential property you want.
Just keep in mind, though, that investing in residential real estate is not always easy money.
Firstly, you need to purchase the right residential property from all of those on the market (which is how a Buyer’s Agent can help you).
You also need to be patient as it can take time and effort to find quality tenants. Since the industry is cyclical, you can also expect to be affected by changes in interest rates, as well as vacancy rates and more.
How about investing in commercial property?
Commercial properties are any structures that are used to conduct business or some sort of commercial activity. They can range from shop fronts and offices to factories and warehouses.
Generally speaking, commercial properties offer higher gross rental returns than residential properties. Because you deal with revenue-making businesses as tenants, investing in commercial real estate enables you to build professional and profitable relationships with entities that have great income potential.
Here are some additional advantages of investing in commercial properties:
- Triple net leases – With a commercial property, often the tenant bears the responsibility to pay all the expenses of the property;
- Flexibility – There are fewer consumer protection laws that govern commercial leases. Because businesses have limited hours of operation, you can also use off-hours to manage their concerns or maintenance needs; and
- Less turnover and competition – Lease agreements with businesses are usually over a year in length as they tend to remain in one place to operate. The commercial real estate market is also less competitive which means these tenants don’t move around from property to property on a whim.
What are the types of commercial properties?
Commercial properties that cater to profit-generating activities come in many forms. However, here are three of the most popular investments:
- Retail – Retail properties are for stores, shops, restaurants and other businesses that sell goods and services.
- Office buildings – These are spaces where clerical activities, administrative duties and meetings among employees are performed.
- Industrial buildings – These are utilised for manufacturing and production operations. Some examples are factories, mills and plants.
Despite the promise of excellent returns, investing in commercial properties also comes with risks. Depending on the economic environment and level of competition, a commercial property could be empty for months between tenancies. You also need to make a more considerable initial investment to purchase a commercial property – especially if it’s in a desirable location and lenders often require a larger minimum deposit.
So, what’s the best choice for property investment?
Well, the answer is – it depends.
As you saw, both commercial and residential properties have their own pros and cons.
Therefore, it’s important to assess your goals, requirements and finances before making an investment.
I always suggest speaking to property professionals like a Buyer’s Agent as an absolute must because they can work out a plan and steer you in the right direction. It’s a tough decision, not to mention a BIG one – so you want some guidance. Through their skills, knowledge and local expertise, you’ll gain useful insights to make more informed choices.
If you’re not quite sure where to start, Worth Property Investing can gladly help you secure the ideal property investment that matches your goals.
Do you want to invest in property?
My team at Worth Property Investing are passionate about helping you make the right purchase, in the right location, at the right time and the right price.
We are your property buying partner, here to support you in making the right property decisions. As your trusted licensed Buyer’s Agents, we do everything from searching, connecting, researching, bidding, negotiating and securing the best investments.
So, let’s start planning your next property investment and the ways in which we can support you. Speak to us today!
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