204 views 7 mins 0 comments

Residential vs Commercial Property: Which is Better for Investment?

In Business
April 21, 2023
Commercial vs Residential

The inflation rate is high in India, due to this real estate is considered a safe investment that helps to cope with the rising rate of inflation. The value of real estate increases at such a rate which can give profit to investors in any case of inflation. The rate of real estate is increasing due to the rise in demand for housing and commercial properties. Being the most populous country, India is also a developing nation which affects the rise in demand for commercial properties. In the era of startups, the need for offices has been raised too much. To fulfill the rising demand, many concepts have been introduced in the Indian market. One of them is a coworking space.

On the other hand, People move to cities for work which has become the reason for the rise in demand for residential properties. So, it can not be said clearly that investment in which commodity would be more fruitful. Here are the points which can help you make clear which kind of property suits your vision.

Factors to differentiateResidential propertyCommercial property
NatureIt is a place used to run a business which could be a hospital, hotel or office of any company. So this type of property is given on rent to tenants who want to use it for profit-generating activities.Retail building, office building, complex, high-rise apartment and land
TypeThe cash flow is fluctuating due to changes in demand which makes this kind of investment more riskierStand-alone houses, mobile homes, multi-family residential and duplexes
Rental incomeRental income is comparatively low.Rental income is comparatively high.
Risk The cash flow is steadier as tenants don’t leave the property frequently so it makes this investment less riskier.The lease tenure is for a longer time and tenants of commercial property are reliable. They don’t leave the property frequently as their business depends on location and property.
Lease tenureLease tenure is for a shorter time. Tenants usually change their rental house. Tenants here are less reliable. A small thing can change the tenant’s mind and they leave the property. The commercial property owner has to undergo multiple investigation processes and apart from this there is a long list of formalities done at the time of purchasing property.
Hassle free purchaseIt is easier to buy residential property as formalities and paperwork are lesser than commercial property.The upfront cost is low as there are less formalities and the process is also not much longer to acquire residential property
Upfront costMore amenities are provided to tenants of residential property which makes maintenance costs comparatively higher.Upfront costs are higher as it needs a lot of paperwork and formalities and a long procedure is followed up to acquire commercial property. 
Maintenance costBuying a residential property is more affordable, unlike commercial property. Home loans are also available at a very low-interest rate.It is a lengthy process and a lot of paperwork is required to take out a loan for commercial property. The loan is taken in the name of a business entity.
Investment budgetUsually, commercial properties are in high demand and at prime locations which makes it very expensive to buy.Maintenance cost is low as there are fewer amenities offered to tenants.
LoanIt is easier to take out a loan for residential property. The interest rate is also lower in this case. The loan is taken on the name of an individual.In the case of commercial property, contract law allows both parties owner and tenant to decide and agree over issues related to rent and lease.
Government policiesThere is a law, residential legislation which favors the tenant over the owner most of the time. So it would be difficult for the owner sometimes to get justice.There is no need for the property to be in prime location but there must be good connectivity with the market, malls and restaurants. It can create more demand for your property in the market.
locationThere is no need for the property to be on prime location but there must be good connectivity with the market, malls and restaurants. It can create more demand for your property in the market.Location matters a lot for commercial property. It must be at a prime location where connectivity is better on the road and transportation, water, and other things which help to run the business smoothly.
Value additionThe return on investment would be lower in residential property. It depends on location as well. Location matters a lot for commercial property. It must be at a prime location where connectivity is better on the road and transportation, water and other things which help to run the business smoothly.

Final words

This article provides a deep insight into residential and commercial property. See, if you are a beginner and want to invest in real estate, go for residential property as It is less risky, and commercial property investment needs experience. But the commercial property has a higher yield and the income source through this becomes more steadier. Money is precious so think wisely before putting money in any kind of real estate.